South Korean tech giant Samsung Electronics warned of lower 2018 earnings on weak smartphone sales, which have overshadowed record chip revenue. The company made the announcement during the presentation of the financial statement for the second quarter, which ends the series of rising profits.

The company posted earnings guidance of KRW 14.8 trillion (USD 13.2 billion) in operating profit versus KRW 58 trillion (USD 51.8 billion) in revenue for the second quarter, which it would represent a 0.7% decrease in sales and an 11% year-on-year increase in earnings. However, last quarter, Samsung made KRW 15.64 trillion in revenue gains of KRW 60.56 trillion, its strongest results to date. This ends the series of 4 consecutive quarters in which the world’s largest smartphone maker made more and more profits.

Although the chip business will post a record profit for the seventh consecutive quarter, the weaker performance of the smartphone business has raised concerns that the mobile business remains unmanageable to drive sales of premium Galaxy devices. Low sales of the Galaxy S9 have weighed on Samsung’s results in the second quarter.

According to analysts, the lower sales are due to the stabilization of the smartphone market and increased competition.

Shares of Samsung fell about 12% this year on concerns about lower earnings growth and a lack of technological innovation to boost smartphone sales.

New data from Counterpoint Research highlights Samsung’s woes, showing that its new premium Galaxy 9 Plus is overtaken by Apple’s iPhone 8 as the world’s best-selling smartphone due to weaker sales in Europe.

Competition from cheaper Chinese brands like Xiaomi and Huawei has already led Samsung to lose market share in China and India, which are the world’s top smartphone markets.

Although the smartphone business is not good, Samsung’s profits are largely due to strong global sales of DRAM and NAND chips, which account for around 30% of its revenue.

Total sales revenue decreased 4.9% year-on-year to KRW 58 trillion, Samsung announced, compared with analysts’ expectations of KRW 59.7 trillion. The company will share more detailed information in July.

The outlook for chips remains good and the next iPhone is likely to boost NAND chips after they fell as much as 15% in the second quarter.

Things may improve for Samsung later in the year, but OLED panel sales could disappoint. Apple reportedly expects a new 6.1-inch LCD iPhone to account for a larger share of sales in its line this year.

Overall, Samsung’s third-quarter earnings will be stronger than the second quarter as the company will perform better in the chip and display business. The company’s forecast for the second quarter is for an increase of 5% compared to the same period of the previous year, but it does not meet analysts’ expectations. However, investors are increasingly concerned about the possibility of a trade war between the United States and China and how it may affect major exporters such as South Korean tech giants.

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