Samsung's Q1 2019 profits plunge by 60% as chip business takes a hit

Samsung isn't making as much money from its chip business, and that's worrying.

In recent years, Samsung has relied heavily on its semiconductor business to drive growth. With the manufacturer occupying a dominant position in the DRAM space, it was able to post record profits quarter after quarter even as its phone business saw little to no growth.

But with the global memory market seeing a decline, Samsung's profits have taken a drastic hit. In its Q1 2019 earnings, Samsung posted revenues of $45.1 billion (52.4 trillion won), down 20% from the $56.5 billion it posted at the same time a year ago. Operating profit at $5.3 billion (6.2 trillion won) was down a staggering 63% from the $15.6 billion the manufacturer posted in Q1 2018.

Samsung mentioned that in spite of strong sales of the Galaxy S10 series, year-on-year profitability decreased as the manufacturer faced increased competition in the low- and mid-tier segments. Samsung's mobile unit posted revenues of $23.4 billion (27.2 trillion won) and overall profit of just $1.9 billion (2.27 trillion won), both down from Q1 2018. Samsung has undertaken a course correction in the budget segment with the Galaxy A series, and that should hopefully turn things around for the brand.

Samsung is forecasting increased demand in the latter half of the year as devices like the Galaxy A80 go on sale. In the premium segment, Samsung is betting on the Galaxy S10 5G and the Nate 10 as well as the Galaxy Fold to push sales.

Elsewhere, Samsung's display unit posted a loss of $482 million (0.56 trillion won) on weak demand for mobile and LCD TV panels. But the business that took the biggest hit was the semiconductor unit, which posted revenues of $12.45 billion (14.47 trillion won) and an operating profit of $3.5 billion (4.12 trillion won). The decline was attributed to "macroeconomic uncertainties, weak seasonality and inventory adjustments by datacenter firms." Both NAND and DRAM sales were down, but Samsung is projecting that DRAM sales will start picking up over the course of the year.

Samsung is investing $115 billion over the next 10 years on its foundry business as the manufacturer looks to diversify its offerings.