Samsung to draw line under lackluster 2019 with chip revival in store

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© Reuters. FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul© Reuters. FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul

By Hyunjoo Jin

SEOUL (Reuters) – With Samsung (KS:) Electronics (KS:) expected to suffer its biggest annual profit drop in at least a decade, investors are counting on an expected uptick in the memory-chip market to cure the tech giant’s ills this year.

When it issues preliminary fourth-quarter results on Jan. 8, the world’s top maker of memory chips used in smartphones, laptops and servers is set to post a 40% slump in operating profit to 6.48 trillion won ($5.56 billion), according to Refinitiv SmartEstimate, weighted towards more consistently accurate analysts.

The three months ended December are expected to mark the South Korean firm’s fifth year-on-year decline in quarterly profit, ending a year marred by bloated stockpiles of chips that squeezed prices, and the U.S.-China trade war that roiled global supply chains and prospects for consumer demand.

With 2018 having been a record year for earnings, last year’s slump likely means Samsung posted its biggest percentage drop in annual profit in at least a decade.

But with the United States suspending planned December tariffs on Chinese goods, including mobile phones and laptops, concerns about demand have eased as optimism for the rollout of new 5G networks around the world has grown.

“We expect overall market recovery in the first quarter of 2020,” said Michael Yang, a director at IHS Markit. “Both solid demand forecast from the server/hyperscale (infrastructure) customers and optimism around 5G smartphone adoption are the drivers for growth.”

Reflecting that mood, analysts polled by Refinitiv SmartEstimate expect Samsung’s annual profit to surge nearly 40% in 2020. The company itself doesn’t typically issue full-year earnings estimates.

Despite 2019’s tough times for the world of chips, Samsung still generated half of its January-September profit from the business. That core strength, along with optimism for 2020, helped Samsung’s shares ride out weak earnings to end last year with a 44% gain, compared with an 8% rise for the Seoul benchmark index.

Still, many industry experts remain cautious about the strength of recovery this year.

“The chip market will rebound in 2020 from a low base last year, but it is premature to expect a boom (like that) seen in 2017,” said Park Jun-hong, a director at S&P Global (NYSE:) Ratings.

Samsung, also the world’s leading maker of mobile phones, TVs and displays, itself echoes that caution. It flagged last week what it said would be a more difficult global economy this year, hurt by rising political uncertainty and a possible slump in consumption.

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