60% profit drop expected for Samsung as trade war bites

Samsung Electronics is expected to see its quarterly profit half as the trade war between China and the US hits the market.

The tech giant is due to report its preliminary second-quarter earnings on Friday, and is expected to reveal a dramatic 60 per cent drop in profits to 6 trillion won (£4 billion), marking its lowest in nearly three years.

This is largely due to trade sanctions placed on its Chinese rival mobile phone maker Huawei, one of Samsung’s largest buyers of microchips, by the US.

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In order to comply with the trade sanctions issued by Washington, which has said Huawei is a security risk, Samsung has been forced to stop selling its DRAM and NAND memory chips to Huawei, leaving it with a surplus of hardware it has no choice but to lower the price on.

“When there’s not many players that can buy chips instead of Huawei, then Samsung has to cut prices to sell them,” Sangsangin Investment & Securities analyst Jay Kim said.

On the flipside, Samsung’s smartphone business is set to benefit significantly from what is thought to be a 40 per cent drop in international sales of Huawei phones.

However, Samsung’s chip business is by far its most lucrative, accounting for as much as two thirds of its profit.

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