South Korea's Samsung Electronics (005930.KS) slashed capital spending by more than a quarter in 2018 Wednesday, warning that the profit decline will continue until early next year, saying the two-year memory chip boom will come to an end. Thanks to the good fortune of Samsung, Samsung earned a record profit in the third quarter.
Samsung Electronics's pessimistic forecast deepened investors'unease, cooling global demand for mobile phones and other electronic devices, and has hit global stock markets hard this month.
Samsung Electronics said it expects earnings to fall in the fourth quarter as demand for memory chips weakens and spending on smartphone marketing rises during the end of the holiday season.
"Looking further ahead to 2019, first-quarter earnings forecasts are expected to be weak, seasonally affected, but then to strengthen as business conditions improve, especially in the memory chip market," Samsung Electronics said in a statement.
Analysts said Samsung's capital spending cuts should ease fears of higher supply and lower prices, as some memory chip prices have fallen to more than two-year lows and rivals set to start new production lines next year.
Samsung Electronics points out that capital expenditure will be cut by 27% to 31.8 trillion won ($28 billion) this year, compared with a record 43.4 trillion won last year.
"NAND chip prices will continue to fall until the first quarter of next year... (because) new Toshiba (6502.T) production lines will start and one of Hynix (000660.KS) NAND production lines will start mass production," notes HI Investment & Security analyst Song Myung-sup.
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