Samsung Earnings Fall sharply, Drawing Down by Slump

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SEOUL—

Samsung Electronics Co

The third quarter's net profit fell sharply, under pressure from the memory chip market, despite the growth of its mobile and demonstration businesses.

South Korean company reported a net profit of 6.29 trillion won ($ 5.4 billion), a 52% decrease from a year earlier, when the company reported its net net profit. The company reported revenue of 62 trillion won, down 5.3%.

Samsung, the world's largest producer of memory chips, provided a quarterly recorded profit for most of 2017 and 2018 as the global demand for chips rose.

More than 75% of Samsung's earnings came from chips last year, but the semiconductor glut pulled down prices, which put an end to the storm.

The lump sum does not affect the company's share price, which is more than 30% this year from Wednesday. Some analysts say the stock has risen in anticipation of re-demand in chips next year from smart phone manufacturers.

The amount of memory required for smartphones will increase, due to faster communication speeds and 5G enabled smartphone circulation in 2020, said Kazunori Ito, analyst at Morningstar Inc..

But others warn that the market for chips is unlikely to return soon. Economic uncertainties regarding U-China trade war are being encouraged by Chinese companies such as Huawei Technologies Co. to make an inventory of chips before trade restrictions may exist, said Kim Nam-hyung, analyst at Arete Research .

Samsung mobile business generated an operating profit of 2.92 trillion won in the third quarter, up 32% from a year earlier. The company's display business recorded a 6.3% increase in operating profit to 1.17 trillion won.

Thursday early in Seoul, Samsung shares were up to 2%.

With businesses range from smart phones to washing machines, Samsung has historically had some profit drivers. Just six years ago, Samsung received nearly 70% of its profits from mobile devices and took the fifth part of the Chinese smartphone market.

But the company began to influence the world's largest smart phone market as Chinese companies sent cheaper, more similar quality devices to consumers. Samsung now has only 1.5% of China's smartphone market share, although it remains the world's largest smart phone maker, according to research firm Canalys.

Then came his cash business on Samsung semiconductor business, which contributed to the boom of connected devices, servers – and at one point – criptocurrency boom. A high demand for semiconductors ended late last year with China's economic slowdown and trade tensions with the US.

Samsung has tried to cut costs as the chip demand fell. In September, the company closed all smartphone production in China. Starting last year, he began making some smart phone models through a Chinese company, Wingtech Technologies Co., which also reports smartphones to Huawei Technologies Co. Ltd.

Xiaomi Corp.

Unlike its competitors, Samsung refused to outsource smart phone production. But its own production lines were inefficiently maintained as Chinese competitors launched cheaper and better devices.

The move reveals a change in Samsung's strategy to target short-term profit on low-cost phones and move on from production internally, said Tom Kang, analyst at Counterpoint. “Once a company goes out of production, it is difficult to bring it back internally at the same cost level,” he said.

Samsung said that external firms “limited numbers” of smart phone models; he refused to make further comment.

The company has not decided to increase the smart phone production produced by the original manufacturer, Lee Jong-min, Samsung's Mobile Business Vice President, said on a call earnings conference on Thursday.

Apart from his earnings, corporate governance scandals continue to weigh over Samsung, although industry analysts say that investors have become accustomed to the legal saga with a vice-chairman.

Lee Jae-yong,

the third generation heir Samsung.

Last week, Mr Lee returned to court of appeal to review his case for contradicting the former president of South Korea. The 51-year-old spent almost a year behind the bars until February 2018 when his sentence was suspended, although his conviction remained. Experts on South Korean law did not exclude Mr Lee returning to prison.

Earlier this month, Mr Lee stood out of Samsung's board, although he remains a deputy chairman. Samsung spokesman refused to comment on the impact of Mr Lee's departure on his day-to-day responsibilities in the company.

Write Eun-Young Jeong at Eun-Young.Jeong@wsj.com

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