Samsung Electronics has reported that its operating profit for the fourth quarter fell compared with last year’s, even though it posted revenue above market expectations.
This decline can be attributed to the higher costs of research and development in its semiconductor division.
After the announcement of earnings, the shares of the Korean company fell around 2% Friday.
Samsung Q4 2018 numbers and forecasts
Samsung’s fourth-quarter revenues were KRW 75.8 Trillion ($52.2 Billion), slightly higher than the KRW 75.4 Trillion estimated by LSEG SmartEstimate.
Analysts had predicted a profit of KRW 6,8 trillion. However, the actual operating result was KRW 6.5 billion.
Revenue increased by 12 percent year over year, and operating profits grew 130% in comparison to the same time period last year.
When compared with the prior quarter, revenues dropped more than 4% and operating profits fell by almost 30%.
The net income from October to December rose by 22.2%, reaching KRW 7,75 trillion ($5.4billion) compared with KRW 6,34 trillion the year before.
Samsung had forecast a fourth quarter revenue range between KRW 65 trillion and KRW 6 trillion, with an operating profit of KRW 6 trillion.
Samsung’s revenue for the entire year was KRW 300.9 billion, up from KRW 258,94 trillion in 2013. The annual operating profit increased to KRW 32,7 trillion from KRW 6,57 trillion in 2023.
While revenue and profits for the fourth quarter declined from one quarter to another, revenue on an annual basis was second highest ever, only to be surpassed in 2022.
Samsung has stated that earnings will remain pressured in the short term due to the continued weakness of its semiconductors business. It aims to grow in the future through AI-enabled phones and premium products.
It also stated its plans for the year 2025. These include advancing AI technologies, increasing high-value production of semiconductors, and strengthening their presence in premium segments.
Samsung is planning to increase sales of its new flagship models including the Galaxy S25, which was just launched.
Samsung’s semiconductor business performance
Samsung’s memory chip division reported a profit operating of KRW 2,9 trillion for the fourth quarter. The operating profit was down by more than 25 percent from the prior quarter.
The segment’s profit declined despite a record fourth quarter revenue of KRW 30.10 trillion. This was largely due to the strong demand for memory products that are used in AI-related applications. Samsung attributes the decline in profits to:
- R&D costs are higher to ensure long-term technological leadership
- Costs associated with initial ramp-up of production for semiconductor nodes that are cutting edge
Samsung is one of the leading suppliers of DRAM, or dynamic random access memory (also known as flash memory), which are both essential for data storage and processing.
SK Hynix is a growing competitor, as it has become the leader in the high-bandwidth DRAM (HBM), a DRAM type optimized for AI applications and used to power large-scale models of machine learning.
Samsung has announced that they are adjusting their product mix to increase the production of HBM and reduce legacy memory products.
Although earnings are expected to be weak in the short term, the company anticipates that the overall demand for memory will recover by the second quarter 2025.
Samsung’s smartphone segment Performance
Samsung’s Mobile Experience (MX), which comprises smartphones, tablets and wearables as well as network-related equipment, experienced a decline in operating profit and revenue in its fourth quarter.
The decline in performance was due to the diminishing impact of the new flagship models, which were responsible for the stronger quarter prior.
The division’s quarterly report was:
- KRW 25,8 Trillion Revenue
- Operating Profit of KRW 2,1 Trillion
Samsung reported that despite the decline in quarterly sales, the Galaxy S24 Series has seen double-digit increases.
In terms of both shipment volume and value, the company saw an increase in sales of wearables and tablets.
Why did shares drop over 2% after Samsung Q4’s operating profit increased 130%? This post may change as new information becomes available
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