Samsung pressured to cut spending as demand slackens

SEOUL • With Samsung Electronics Co Ltd set to report its first drop in quarterly profit in two years, investors are counting on the world’s biggest chipmaker to cut capital spending to keep profits owing during a supply glut.

Samsung will probably report a 15% decline in net income to about 10.2 trillion won (RM37.31 billion) for the last three months of 2018, according to analyst estimates compiled by Bloomberg. That would be the first time earnings have fallen since the third quarter of 2016.

How much a chipmaker spends on its ability to produce the components is currently a hot topic among investors in the US$463 billion (RM1.9 trillion) semiconductor industry, where a handful of manufacturers dominate memory output. Samsung already cut annual capital expenditure (capex) last year. Chips make up the biggest portion of income for the Suwon, South Korea-based company, which is struggling with falling sales of Galaxy smartphones and iPhone screens.

“There is strong chance that Samsung will reduce its capex plans for 2019,” said Mike Howard, VP of memory research at Yole Developpement. “It makes a lot of sense to reduce capex when the market is oversupplied.”

After falling 24% last year, Samsung’s stock has climbed 18% this year. A representative for Samsung declined to comment before the release of final figures today.

Its closest rival, SK Hynix Inc, made it clear that spending cuts are coming this year when reporting results last week that fell short of analysts’ estimates. Hynix’s comments in a call with investors helped boost its shares to fresh highs for the year, fuelling optimism that Samsung would follow suit.

Memory-chip inventories remain high as customers such as data centres hold off on expansion plans amid the brewing US-China trade war, as well as slower global economic growth. The price of dynamic random-access memory used in servers is projected to fall by more than 20% quarter-on-quarter in the first three months of this year, according to TrendForce.

Earlier this month, Samsung reported preliminary earnings with operating income slumping 29% to 10.8 trillion won.

Samsung will probably spend less than US$10 billion on factory equipment this year, down from the US$14 billion projected before September, according to Christian Dieseldorff, senior analyst at Semiconductor Equipment and Materials International. Samsung said in October its entire capex would drop 27% to 31.8 trillion won in 2018. — Bloomberg