Samsung on Friday said it expects operating profit to drop more than 55% for the second quarter amid a decline in memory chips that are used in smartphones and data centers.
Samsung is the world’s biggest maker of memory chips, which make up most of the company’s profits. Customers are seeing a surplus of DRAM and NAND, which has bogged down the price of computer memory. Samsung is second in overall semiconductor sales.
Trendforce has forecast a drop of 15% in DRAM prices in the third quarter, then another 10% in the fourth quarter. NAND prices have dramatically dropped by more than 30% in 2019, with further decline possible. A recovery depends heavily on trade talks.
Samsung released a terse statement Friday that said its operating profit would be about $5.5 billion (6.5 trillion Korean won) , down from $12.65 billion (14.87 trillion won) in the second quarter of 2018.
A full report on the second quarter is expected later this month.
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Smartphone sales have generally been flat or declining for more than two years, and data center spending has been reduced since the start of 2019.
Samsung and Micron have both dropped capital spending on memory chip production. For Samsung, it was a 10% capital reduction on chips last year, while Micron has taken steps to draw down capital spending on memory chips by more than 10% by 2020.
The underlying cause of lowered chip demand is generally blamed on the trade battle between the U.S. and China. Samsung is a Korean company, but it is tied into a global market for suppliers and customers.