Samsung lowers earnings guidance in Q1 as Huawei’s phone business grows

Samsung released earnings guidance for what could be the company’s lowest profit quarter since 2016. The company said its profit will likely be 60% lower than in the first quarter of 2018. The lower guidance stands in stark contrast to Huawei, which recently reported its fastest growth in two years, driven by its low-cost smartphone business.

Samsung expects to report profits of 6.2 trillion Korean won ($5.5 billion) for the first quarter, missing analyst estimates of 6.8 trillion won ($5.9 billion). The company estimates it made between 51 trillion and 53 trillion Korean won ($45 billion to $47 billion) in revenue in the first quarter, down 15% year over year.

Samsung had warned investors of a disappointing quarter earlier this year, pointing to a slowing demand for its chips and displays and a struggling smartphone business. The company said demand for displays, which Apple uses in its iPhones, has dropped, while its memory chip business has slowed considerably. The company expects demand for memory chips and OLED displays to pick up during the second half of 2019.

A year ago, Samsung enjoyed record quarterly earnings at a time when demand for memory chips was considerably higher than today. Its first-quarter 2018 net profit jumped 52% year over year, while sales jumped nearly 20%.

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Samsung’s smartphone business, on the other hand, has suffered as new Chinese rivals—like Huawei—are gaining market share with low-cost phones. Last month, Huawei reported a net profit of close to $9 billion in 2018, driven primarily by its smartphone business. Profit was up 25% compared to the previous year, while Huawei’s revenue for the year increased by almost 20% to reach $105 billion.

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In the first quarter of 2018, Samsung reported strong performance for its Galaxy S9 smartphones and solid sales of its Galaxy S8. But the wider smartphone market has slowed down in 2018. During the fourth quarter of 2018, Apple, Samsung and LG all reported lower-than-expected sales, while Huawei’s smartphone revenues increased by 45% in 2018.

Consumers have been slower to upgrade their phones, as prices for smartphones have steadily risen as competition in the handset market has driven smartphone makers to introduce more features, cutting into profitability. The Galaxy S8 started at $720, while the Galaxy S9, which sports a big 6.4-inch Super AMOLED display, retailed at $1,000.

Samsung’s latest line of Galaxy phones, including the S10 5G phone, which is the first handset on the market to support 5G, and its new foldable phone, are its most expensive yet. The S10 5G will start at more than $1,000, while the Galaxy Fold will sell for nearly $2,000.

The company will release its full earnings report in late April.