Samsung’s operating profit plunged 60% in the first quarter, as the South Korean technology company grapples with the delayed launch of its troubled Galaxy Fold phone and waning demand for its memory chips.
The world’s largest smartphone maker reported an operating profit of 6.2 trillion won ($5.3 billion) for the first quarter on Tuesday, compared to 15.6 trillion won ($13.4 billion) the year before. Sales for the three months ended in March dropped around 14% to 52.4 trillion won ($45 billion).
Shares in Samsung fell about 1% in morning trading in Seoul.
Samsung blamed the earnings slump on a stagnant global smartphone market and slowing demand for memory chips. Operating profit for the latest quarter was the lowest since late 2016, when Samsung was dealing with the Galaxy Note 7 fiasco. Millions of those devices had to be recalled due to reports of exploding batteries.
The dismal earnings report comes a week after Samsung announced it was delaying the launch of its highly anticipated foldable smartphone. Several reviews of the Galaxy Fold reported defective hinges and screens that broke after removing the Fold’s protective film.
During an earnings call Tuesday, the company said it analyzed the Galaxy Folds returned by early reviewers, and found damage “due to force applied” to the display near the top and bottom part of the phone’s hinge – the area where the screen is less protected. The company said it is trying to fix the problem, but also appeared to shift some of the blame to how reviewers used the phone.
“We need to provide and prepare better communication with customers on how to use the Galaxy Fold,” Robert Yi, Samsung Electronics’ head of investor relations, said during the earnings call. An updated launch schedule will be announced in the next few weeks, he added.
It is a setback for Samsung, which has worked to win back consumer trust following the Note 7 debacle. The company is also facing increasing competition from rival smartphone maker Huawei, which is set to launch its foldable phone in the coming months.
The Galaxy Fold delay isn’t going to affect Samsung’s current market position since foldables are “nowhere close to mass market adoption,” said Kiranjeet Kaur, an analyst with research firm IDC.
But “if Huawei’s foldable smartphone makes an appearance fault-free, it could dent Samsung’s image in the process,” she added.
In recent years, huge demand for memory chips was what drove Samsung to record profits. The company warned Tuesday that it expects the overall market for those chips to remain slow next quarter.
But Samsung is already looking toward the next big computer chip cycle, announcing last week that it will invest 133 trillion won ($114 billion) in non-memory chips. The move could put Samsung in a better position to cash in on the growing demand for chips that will power 5G devices, self-driving cars and devices that use artificial intelligence.