Huawei problems mean bad news (and good news) for Samsung profits

Samsung could see its profits more than halved in the company’s second-quarter thanks to a sharp drop in shipments to Huawei.

Samsung is set to report its preliminary earnings on Friday and the company is expected to report its lowest quarterly result in almost three years with profits dropping by more than half, according to a report by Reuters. This fall is due to US restrictions on trade with Chinese competitor Huawei leading to a glut of unsold Samsung chip shipments.

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Samsung is the world’s biggest supplier of DRAM and NAND memory chips. The South Korean company is also the largest maker of smartphones, selling 292 million devices last year followed closely by Huawei’s 205 million. Huawei may be a competitor of Samsung, but it is also a huge source of income for the company’s chip sales and the restrictions are set to have a significant impact on Samsung financially.

Samsung is struggling to flog its oversupply of chips without Huawei’s business. Trendforce tech researcher Avril Wu explained that it would be difficult for Samsung to clear its inventory of DRAM chips until the first half of 2020, leading to the company likely reporting a drop in profits throughout 2019.

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Trendforce estimate that DRAM chip costs have fallen 25% in the past 3 months and that decline is likely to continue in the coming months.

“How much Huawei will use chips ahead is definitely a swing factor in prices,” said Sangsangin Investment & Securities analyst Jay Kim. “When there’s not many players than can buy chips instead of Huawei, then Samsung has to cut prices to sell them”.

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Samsung’s smartphone business, on the other hand, is likely to soar thanks to Huawei’s troubles. A 40% drop in international sales for Huawei means that Samsung could sell around 37 million more smartphones annually, according to HI Investment & Securities senior analyst Song Myung-sup. Huawei’s troubles seem set to spell both good news and bad news for Samsung this year.

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