Samsung manages expectations after posting record Q3 2018 profit

Samsung released its Q3 2018 earnings guidance last month. It predicted record profits this past quarter compared to the same period last year. Samsung expected sales of 65 trillion won or $57.5 billion and 17.5 trillion won or $15.5 billion in operating profits. That would have smashed its record for the highest profit ever in a single quarter.

The company today released its full earnings results for the quarter. It has indeed met expectations with 65.46 trillion won in revenue and 17.57 trillion won in operating profit. That’s a 20.9 percent surge in profit compared to Q3 2017. However, the company in now managing expectations as it warned of lower profits until early next year.

Record Q3 2018 profit driven by the semiconductor business

Samsung’s semiconductor business has once again driven the company to a new quarterly high. The revenue increased on the back of strong sales of memory products. There was also strong seasonal demand particularly for server and mobile memory.

The Korean giant now says that it expects overall earnings across the company to dip in Q4 2018. This will largely be due to the weak seasonality for the semiconductor market. This period of low demand will also hit the memory chip business. It expects this to impact the first quarter of next year as well. Earnings are then predicted to pick up in subsequent quarters as business conditions improve.

This two-year boom in memory chips has contributed significantly to Samsung’s record earnings. Samsung has now signalled its end by slashing its 2018 capex by over a quarter. It says that the capital spending this year will drop by 27 percent to 31.8 trillion won or $28 billion from the record 43.4 billion won last year.

Analysts expect that this capex cut should assuage the market’s concerns about further supply growth during a period when demand and prices are likely going to drop. Memory chip prices have already fallen to two-year lows. New production lines by Samsung’s rivals are coming online next year and the increased supply may push prices down even further.

Samsung says that it will continue to improve its competitiveness in emerging technologies such as AI and 5G. It aims to sustain mid- to long-term growth by doing this.

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