Samsung sees big profit loss in Q1 2019 due to declining chip sales

Things are not going well in Samsung-land.

Ahead of its earnings report later this month, the South Korean electronics giant shared earnings guidance for operating profit in the first quarter of 2019 — and it doesn't look good.

Samsung says it expects operating profit for the quarter to total 6.2 trillion Korean won ($5.5 billion) — a 60 percent drop compared to the 15.64 trillion won ($13.75 billion) profit it raked in during the same period in 2018.

SEE ALSO: Samsung Galaxy S10 5G could hit stores next month

Samsung says a number of reasons contributed to its reduced profit, including decreased demand for memory chips for data centers from Amazon and fewer orders for storage chips for iPhones from Apple.

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Slowing orders for both of these types of chips pushed prices down and as a result lowered quarterly profits.

"Samsung is going through the toughest period of time before demand likely picks up again in the bottom half of the year," Song Myung-sup, an analyst at HI Investment & Securities Co., told Bloomberg. "Inventory levels at clients are right now high and purchases have temporarily come to a halt."

Similarly, Samsung's own smartphone business is struggling to help bolster profit. Like Apple, the company is seeing slowing phone sales as customers hang onto their devices longer or flock to more affordable (but still feature-packed) phones from brands such as OnePlus.

Samsung's flagship Android phones also face stiff competition in China where companies like Huawei, Oppo, and Xiaomi are releasing devices with innovations such as a 5x periscope optical zoom or a sliding form factor.

Despite these challenges, the Galaxy S10 family could prop up profit in the second quarter of 2019. All three new S10 phones — the $749 S10e, $899 S10, and $999 S10+, received mostly positive reviews from tech critics (us included).

There's no way to spin the a 60 percent drop in year-over-year profit into a good thing, but the South Korean electronics giant is far from doomed.

The company's reportedly betting on its upcoming 5G version of the Galaxy S10 and its foldable Galaxy Fold to help reverse declining profit.

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