Samsung’s profits fall 56 percent amid weak demand for its chips

The big picture: Samsung’s phone business has done a lot to offset the loss the company experienced due to weakening demand for memory chips. During Q3 2019, a third of all profits came from strong smartphone and TV sales. Still, earnings are down 56 percent when compared to last year, and the company is placing its bets on 5G and foldable phones for a 2020 turnaround.

Samsung recently posted its latest financial report, and it looks like the company has been severely affected by the decline in demand on the global memory market, which has been a significant contributor to the company’s bottom line in recent years. Barring that, the Korean giant had a relatively strong third quarter this year, mostly thanks to its smartphone business.

For the three months ending in September, the company posted revenues of approximately 62 trillion won ($53 billion), which is a 5 percent drop when compared to the same period of last year. However, it only registered a 7.8 trillion won ($6.7 billion) in operating profits, which is a 56 percent drop year-over-year.

The results are more or less in line with what analysts expected and continue the trend shown in the previous quarter. Samsung’s third quarter of 2018 was the company’s best, while the third quarter of this year looks like the worst performance of the last three years.

On a more positive note, Samsung’s phone business is doing well, with a 17 percent increase in revenue to 29.3 trillion won ($25 billion). Profits are also up 32 percent, and make up almost 3 trillion won ($2.5 billion) of the company’s total profit. The display business is also flourishing thanks to QLED and OLED TVs, and Samsung expects a higher demand in the coming quarters as we inch closer to the 2020 Olympic Games.

Samsung attributes the performance of its mobile business to strong sales of the award-winning Galaxy Note 10, as well as its budget-oriented A-series that is doing very well in places like Europe at the expense of Apple and Huawei.

Interestingly, the Korean giant remains confident in the face of lackluster demand for its chips, and is betting on 5G and foldable phones to increase their momentum in 2020.

However, the company recently closed its last factory in China as it no longer looks to compete with local brands for razor thin margins. And while Samsung is officially teasing a new concept for foldable phones that looks like a cool, modern take on flip phones, it may have a hard time convincing people to fork up two times the price of a normal flagship for the privilege of owning an even more fragile device.