Samsung warns of tough year on weaker smartphone sales

Samsung Electronics on Thursday warned of weaker earnings this year amid slowing demand for consumer electronics, especially its mainstay smartphones.

In a regulatory filing, the Korean tech giant said its fourth-quarter net profit fell 40 per cent to 3.2 trillion won (S$3.78 million) from a year ago despite a 16 per cent gain in operating profit to 6.14 trillion won.

For the whole year, the company posted 200.6 trillion won in revenue, down 2.69 per cent from a year ago. Operating profits increased 5.55 per cent to 26.4 trillion won.

"Broadly weaker IT demand will make it difficult to maintain 2016 profits at the previous year's level," said Robert Yi, the IR head of Samsung Electronics in a conference call.

According to a consensus estimate from the nation's 25 brokerages, analysts expected the company to report earnings of 5.7 trillion won in the first quarter this year on 48.2 trillion won in revenue.

The downbeat warning came a day after Apple forecast its first quarterly revenue drop in 13 years.

Industry watchers say weaker earnings of big companies such as Samsung and Apple could spell trouble for their suppliers and the broader tech industry.

Samsung's component business divisions also suffered earnings loss in recent months.

In the October-December period, Samsung's semiconductor division, its top earner, reported 13.21 trillion won in revenue and 2.8 trillion won in operating profits. The profits tumbled from the third quarter's 3.6 trillion won due to falling prices of its flagship dynamic random access memory or DRAM chips.

Its display business also posted a weaker operating profit of 300 billion won from the previous quarter's 930 billion won.

The mobile business division's profit climbed to 2.23 trillion won in the fourth quarter from 1.96 trillion won a year ago. The company said its first-quarter mobile profits would improve slightly due to new phone launches, although overall shipments were expected to decline.

"The overall smartphone market will remain difficult throughout this year but we still see growth in the lower-end segment, although competition will be tougher," said Lee Kyung-tae, vice president of the mobile communications business.

"We will continue to add more follow-up models of the A and J series this year to strengthen our competitiveness in the budget phone market."

Separately, Samsung said it planned to buy back and cancel 2.99 trillion won worth of common and preferred shares, marking the second round of share purchases as part of an 11.3 trillion won buyback plan announced late last year.

The firm will also pay a year-end dividend of 20,000 won per share.

jylee@heraldcorp.com