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Why Samsung and LG Just Shocked Analysts With Dire Profit Warnings

January 8, 2019, 10:09 AM UTC

The South Korean electronics giants Samsung and LG have both shocked analysts with dire predictions for their operating profits during the fourth quarter of 2018.

Samsung went first, saying Tuesday that its operating profit for the quarter would be around $9.7 billion. That’s 28.7% lower than the year before — and almost 18.2% under analyst expectations.

The cause was twofold, Samsung explained. One issue is the conglomerate’s memory chip business, which is seeing weak demand. The other is heavy competition in the smartphone market, where Samsung still holds the number one spot, but has seen its share slip in the last two quarters — indeed, the whole smartphone market is currently in recession.

Chinese smartphone makers are currently on the ascendant, in particular, Xiaomi, which recently displaced Apple in the number two position. Apple’s stock plunged last week after it lowered its revenue forecasts for Q4 2018 — note that Apple is not only a competitor of Samsung’s in the smartphone wars but a major customer for its components.

“It’s not just Apple, but also smartphone, server and PC manufacturers that are not buying. While the U.S.-China trade war hangs over them, these customers just won’t accept current prices, and Samsung faces pressure to cut chip prices,” Hi Investment analyst Song Myung-sup told Bloomberg.

Next up was LG, which announced a whopping 80% year-on-year drop in quarterly profits. LG’s estimate is roughly $67 million. Analysts were expecting around $344 million.

Unlike Samsung, LG did not provide further details of why its operating profits came in so low, opting instead to save that information for when it formally announces its Q4 results. According to CNBC, analysts reckon the culprits are end-of-year bonuses and phone marketing expenses.

In terms of stock market reactions, Samsung’s shares fell around 1.7% on Tuesday, and LG’s by around 3.6%. South Korea’s Kospi index was down by almost 0.6% overall.