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After Samsung became the hegemon of the semiconductor market, what is the first time to estimate the decline in quarterly profits?

  According to Reuters, Samsung Electronics estimated that its fourth-quarter revenue was 59 trillion won on Tuesday, down 11% from the same period of last year. The operating profit for the fourth quarter was initially estimated at 10.8 trillion won ($9.77 billion), compared with the same period last year. It fell by 29%. The 26 analysts below the I/B/E/S Refinitiv survey had an average estimate of 13.2 trillion won. The decline in quarterly operating profit will be the first time in two years, including the slowdown in China's economy and the demand for its chips and mobile phones.

According to Refinitiv data, Samsung's global smartphone business profit is expected to fall by one-fifth in the fourth quarter of 2018. In view of the decline in memory chip shipments. Samsung expects overall revenue from the chip business to decline by 5%, and operating profit is expected to decline by 3.7% to 10.5 trillion won.

According to statistics, Samsung’s share of the smartphone market in China is currently less than 1%, but Samsung’s memory and processor chips account for more than three-quarters of its revenue. Samsung provides storage support for smartphone vendors including Apple and Huawei. .

Samsung said it will announce detailed earnings later in January

Song Myung-sup, an analyst at Hi Investment Securities, is "shocking" at Samsung's performance and said "not just Apple, other smartphone companies, servers and PC makers have reduced their purchases of Samsung's memory chips. Although the Sino-US trade war is not good for them, these customers will not accept the current price, Samsung is under pressure to reduce the price of chips.

According to Refinitiv data, analysts expect Samsung Electronics' profit to decline in 2019, as the Chinese market will continue to slump.

Sino-US trade relations and the Chinese market affect the entire electronic circle

China and the United States happen to be Samsung's two largest export destinations. The deterioration of Sino-US relations has also hit the demand for various memories, from personal computers to mobile devices, to Samsung's company, which is trying to revitalize its smartphone business. More pressure. Of course, the same giants as Samsung, which are affected by Sino-US trade relations and the Chinese market downturn, also have Apple.

On January 2, 2019, Apple CEO Tim Cook published an open letter to investors on the official website, saying that Apple's revenue for Q1 in FY 2019 (the natural year 2018 Q4) was lower than expected, and sales of iPhone and other products were also Lower than expected; and said that the weak demand for products mainly comes from the Greater China region. In this year's expected global revenue decline, more than 100% decline was attributed to the Greater China market.

At the same time, because the component suppliers of Apple's iPhone are from all over the world, the iPhone's first downgrade of sales prospects in the past two decades has also affected the stock price of its suppliers. On January 3, after the release of Tim Cook's open letter, Apple's share price fell 9.96%, and iPhone's electronic component supplier Murata's share price plummeted more than 10%, the lowest level in more than two years; iPhone foundry Hon Hai Precision, Weft The share price of Chuanghe and Heshuo also fell by 1% to 3%; A-series processor foundry TSMC shares fell 3%, falling below the lowest level set in June 2018.

It can be seen that the Sino-US trade relations and the sluggish performance of the Chinese market will bring a series of chain reactions to the entire electronics industry. Also, on November 19th, US Department of Commerce's Industrial Security Administration (BIS) proposed a proposal for an export regulatory framework for key emerging and basic technologies and related products. The proposal aims to ensure that the United States is in technology, engineering, and Leadership in the manufacturing sector is unaffected, involving 14 areas including AI, microprocessors, and quantum technology. The bill will also increase the future uncertainty of the chip market.

Chip industry enters recession cycle

However, we must also see that the semiconductor market is welcoming a recession. The chip industry has a cyclical feature of “prosperity-recession”, that is, the overall profit of the industry rises over a period of time (usually a few years), but it will become unprofitable for a while.

As early as September last year, Morgan Stanley and Goldman Sachs warned the semiconductor industry that supply and pricing issues in the chip industry could deteriorate further before entering 2019. Lei also learned that whether it is a semiconductor equipment company or a foundry and chip makers, they have adjusted their capital expenditures last year.

However, the investment agency issued a warning to the semiconductor, but also said that the situation is better than the previous semiconductor recession. First, because the integration within the industry has greatly reduced the number of suppliers in the market, giving the remaining suppliers higher pricing power. . Second, because the weak demand for smartphones has suppressed some chip demand, AI chips, automotive chips, cloud computing, 5G technology and the Internet of Things will become long-term growth drivers.

In addition, there will be differences in the chip market between regions. According to SIA statistics, compared with the same period in 2017, sales of Chinese chips increased by 29.4%, the Americas market increased by 20.7%, Europe increased by 11.7%, Japan increased by 11.5%, and the Asia-Pacific region increased by 5.7%.

The semiconductor industry will face even greater challenges in 2019, but the recession is not detrimental to all semiconductor companies, and AI chips and cloud computing will continue to grow or continue to grow. And, for a strong company, investing in a market downturn is not a good opportunity to enhance competitiveness.