Overnight Samsung Electronics announced that for the quarter that ended in December quarterly profit and revenue missed estimates on sputtering demand for memory chips. Operating income fell to 10.8 trillion ($9.6 billion) won for the South Korean giant. That was well short of the 13.8 trillion won expected by analysts surveyed by Bloomberg. Fourth-quarter revenue fell 11% to 59 trillion won against the 63.6 trillion won projection by analysts.
Samsung’s warning echoed the cut to revenue projections by Apple (AAPLWealth Strength IndexAAPL is Extremely Up and trending Up) last week, but although the two warnings re-enforce each other, the earlier warning from Apple seems to have put the market in a “So what’s new?” stance vis-a-vis Samsung’s warning. The stock fell only 1.7% in Seoul. The shares were down 24% in 2018. And analysis (at least 10 by Bloomberg’s count) have been busy cutting their estimates ahead of the actual results. Today in New York the Technology Select Sector SPDR ETF (XLK) was up 0.71% at 2:30 New York time.
The biggest part of the revenue shortfall at Samsung came from memory chips where slowing demand for products ranging from smart phones to servers have taken a bite out of prices. Contract prices for 32-gigabyte DRAM server chips modules fell 5% in the December quarter. Pries of 128 gigabit MLC NAND flash memory chips fell 3.4% in the period.
Analysts aren’t looking for a recovery in the first quarter of 2019 since that quarter is traditionally a slow period for sales of technology products. Hope on Wall Street has focused on the second quarter when Samsung launches its own Galaxy S10 smart phone and other Android-phone makers announce new models.
Because Samsung memory chips go into so many different products, I think this warning actually has a wider resonance than Apple’s. I’d look to see if first quarter earnings season brings earnings misses and cuts to guidance from other technology companies at either the consumer or component levels. Broadcom (AVGOWealth Strength IndexAAPL is Extremely Up and trending Up), because of the breadth of its product offerings, is a stock where I’d look for indications that cuts to guidance might extend further across the tech sector. The company next reports earnings on March 14.