Samsung Electronics, the world's largest memory chip and LCD panel maker, provided financial guidance for the third quarter on Thursday that showed its operating profit will fall from its all-time-high, but its sales will reach a new peak. The announcement came as a disappointment to investors who hoped the technology industry might skirt a recent slowdown in global growth.
Samsung is considered a technology industry bellwether because it is the world's largest producer of several products, including flat screen TVs, DRAM, NAND flash memory chips and LCD screens. It's also the second biggest mobile phone vendor. Other major IT product makers, including chip giant Intel, have also said their earnings in the third quarter might not reach previous expectations. Intel in August blamed its lowered guidance on weaker than expected PC demand in mature markets, such as the US and Europe.
Samsung did not say why its operating profit will fall compared to the second quarter.
Samsung said its operating profit will reach approximately 4.8 trillion Korean won ($4.28 billion) in the third quarter, while sales will hit 40 trillion won ($35.70 billion). The 4.8 trillion won figure is lower than Samsung's all-time high of 5.01 trillion won in the second quarter, but the 40 trillion won figure would beat its previous sales record of 39.25 trillion won, from the fourth quarter of 2009.
Kiyung Nam, a Samsung representative, confirmed the 40 trillion won sales figure will be a new all time high if that is the final result in Samsung's formal third quarter earnings report. The company is expected to announce the results by the end of this month.
Samsung's financial forecasts have proven accurate in the past. The company nearly matched the guidance it provided in the first and second quarters. Samsung's forecast for the first quarter operating profit was to reach 4.3 trillion won and its final results put the figure at 4.4 trillion won. It also forecast 27.8 billion won in sales for the first quarter, and the final result was 28.3 billion. It's second quarter forecast was for operating profit of 5 trillion won on sales of 37 trillion won, but its final result was 5.01 trillion on sales of 37.89 trillion won.
The operating profit slowdown should come as a surprise to few. Prices of two of Samsung's main products, DRAM and LCD panels, have both declined over the past few months, according to market researchers including DRAMeXchange and DisplaySearch.
Samsung executives had even warned during its second quarter conference call that it might not be able to maintain profitability levels at the high level it hit at that time. "With intensified competition throughout the digital media and mobile industries going forward, it may become a challenge to maintain current profitability levels," said Robert Yi, a vice president at Samsung, during the July call.
Some analysts have blamed slowing technology sector sales on sluggish global economic growth. The International Monetary Fund on Wednesday lowered its forecast for US economic growth this year due to high unemployment and sluggish consumer spending. The organisation said US gross domestic product (GDP) growth will likely reach 2.6 percent this year, down from its previous estimate of 3.3 percent.