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Falling chip prices have cut into Samsung’s margins and put an end to almost two years of increasing profits.
The Korean technology company has forecast that its operating profits for the second quarter of 2018 would be 14.8 trillion won (about $13.2 billion). That would be a decrease from 15.64 trillion won in the first quarter of 2018 and mark the first time its operating profits pulled back since the third quarter of 2016.
Samsung owed much of its success over the past 18 months to its sales of memory chips, which account for just under a third of its revenue. Prices of those semiconductors grew sharply last year and lifted Samsung’s profits.
But since the start of 2018, the prices of two main types of memory chips, known as NAND and DRAM, have fallen 37 percent and 16 percent, The Wall Street Journal reported.
Sales of smartphones — a huge market for memory chips — have begun to plateau, weighing on the price of memory chips. There are now far fewer first-time purchasers of smartphones and feature improvements have become more modest, meaning consumers no longer need to upgrade their devices as often. (Ailing smartphone sales actually seem to be hurting Samsung doubly: The company’s current flagship device, the Galaxy S9, isn’t selling as well as it hoped, The Financial Times reported.)
The memory chip industry also has come under scrutiny over pricing. Chinese regulators are currently investigating Samsung, SK Hynix and Micron Technology, which together control the market for memory chips, over concerns that the trio have been propping up prices. A class-action lawsuit in the United States accused the same three organizations of similar activity during the final half of 2016.
Samsung’s stock fell just over 2 percent on the disappointing profit forecast.