Samsung's Galaxy S20 came out as COVID-19 started sweeping the globe.
Angela Lang/CNETSamsung's new Galaxy S20 lineup and Galaxy Z Flip weren't enough to boost phone demand in the first quarter, and the worst is yet to come. The novel coronavirus, which is sweeping the globe, will "significantly" hurt the South Korean electronics giant's operations in the coming months, Samsung warned Tuesday.
The company's memory chip business is benefiting from "robust" demand for servers and PCs as more people work from home, but "overall earnings are likely to decline from the previous quarter because COVID-19 will significantly impact demand for several of its core products," Samsung said in a press release.
That includes smartphones and TVs, which will see sales "decline significantly," Samsung said, as COVID-19 hurts demand and leads to store and factory closures around the world. The company said a shrinking market and store closures "make a drop in earnings seem inevitable," while "5G network investments may face reductions or delays" in Korea and around the globe.
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Samsung will strengthen its online sales capabilities and leverage its global supply chain and production operations to help its mobile business, the company said. It also will introduce new devices to attract consumers. But "in the second half, uncertainties driven by COVID-19 will persist as the duration and impact of the pandemic remain unknown," Samsung said.
The new coronavirus, which causes an illness called COVID-19, was first detected in the Chinese city of Wuhan late last year. Since that time, it's become a full-blown pandemic, infecting over 3.1 million people around the globe. The outbreak has caused cities and entire countries around the globe to issue lockdowns, shuttering stores, canceling events and forcing citizens to stay at home to help contain the coronavirus.
Samsung, one of the best-known companies in the world, sells more phones and TVs than any other vendor. It also has a huge business selling memory chips to device makers around the globe. In recent weeks, Samsung's chip business has been getting a boost from data centers that rely on the technology to store everything we're doing online. At the same time, those businesses Samsung's better known for have been struggling.
2020 was supposed to be a strong year for the phone industry, as innovations like 5G and foldable screens got people shopping again. Instead, financial struggles and worries about COVID-19 will limit the number of devices companies can make and how many phones people will actually buy. Even once the worst of the pandemic is behind the US and other markets, the global economy will likely continue to struggle.
Samsung's home of South Korea was one of the first markets to get hit by the coronavirus pandemic. The company temporarily shuttered factories, and it also has closed its four US stores. The pandemic spread at the same time Samsung introduced its most important device of the year, the Galaxy S20. Starting at $999, the device could be a reach for consumers out of work or watching their bank balances. Earlier this month, Samsung introduced a new lineup of A Series phones in the US that start at $110. The company hopes they'll appeal to more budget-conscious buyers, including the tens of millions out of work in the US.
Phone woes
Smartphone shipments saw their biggest ever drop in February -- down 38% to 61.8 million units, according to Strategy Analytics -- as the novel coronavirus ravaged China, one of the world's largest markets and a vital manufacturing hub. For this whole year, phone sales should hit a 10-year low.
Samsung on Tuesday said its mobile business sales profits increased from the previous year, and revenue rose about 4%. COVID-19 started hurting shipments toward the end of the quarter and caused them to decline sequentially despite the introduction of phones during the period -- Samsung's Galaxy S20 flagship lineup and its second foldable.
Still, Samsung said it remained profitable by increasing the percentage of 5G phones and being smarter about marketing spending. (Samsung is one of the top spenders on advertising globally.) And the average selling prices of Samsung's flagship phones rose from the previous year as more people sought out the pricier Galaxy S20 Ultra and the Galaxy Z Flip, rather than less expensive S20 models.
The outlook isn't so rosy for the second quarter, though. Samsung said demand likely will "drop sharply in most regions due to an economic downturn caused by COVID-19." The company expects product sales and its overall business to decline as the market shrinks and store closures impact purchases. Consumers often prefer to see phones in person before buying them, and in the US, the vast majority of devices are bought from carriers.
"Amid the market uncertainty, the company will focus on improving cost efficiency and strengthening its online and B2B channels," Samsung said. "In case of any additional disruptions at production facilities, the company will respond by flexibly utilizing its diversified manufacturing capabilities across the globe."
The second half has many uncertainties, Samsung said, including when it comes to possibility of a prolonged pandemic. The company plans to introduce a new foldable and Note devices, as well as introduce 5G phones at lower prices. But it expects to face tougher competition "as manufacturers strive to recover from the weakness in the first half."
Tech troubles
Samsung earlier this month became one of the first tech companies to show how the novel coronavirus was impacting business. The company at the time said its sales for the March quarter would rise to about 55 trillion Korean won ($44.9 billion) but won't be quite as strong as the 56.4 trillion won ($50 billion) Wall Street anticipated at the time. Analysts most recently projected revenue of 55.5 trillion won ($45.5 billion), according to a poll by Thomson Reuters.
Samsung on Tuesday reported sales of 55.3 trillion won ($45.4 billion), while its operating profit totaled 6.45 trillion won ($5.3 billion). A year ago, Samsung reported revenue of 52.4 trillion won ($42.8 billion) and an operating profit of 6.2 trillion won ($5.1 billion).
Apple, too, has been hurt by COVID-19's spread. The company in January said the coronavirus would hurt its revenue and iPhone supply. China is one of Apple's biggest markets and the primary location where its devices like the iPhone are assembled. Because factories closed during the peak of the coronavirus outbreak in China, it caused iPhone shortages around the globe, Apple said. Since that time, Apple has reopened its stores in China but has closed all retail locations outside the region, indefinitely. The company will report its quarterly earnings on Thursday.
Earlier Tuesday, Alphabet, the parent company of Android maker Google, reported better-than-expected earnings for the first quarter of the year, though it warned that the company saw a "significant slowdown" of revenue in March after the COVID-19 crisis began to take hold. Google is a close partner to Samsung, with the South Korean company relying on Android to power its phones.
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