Samsung and LG warn that the worst financial impact of COVID-19 is still to come
Samsung and LG just reported their first quarter results for the three-month period ending in March, with earnings largely unaffected by the COVID-19 pandemic. However, both companies warn that the impact will be felt over the current quarter ending in June. Namely, Samsung and LG expect customers to cut back significantly on TV and smartphone purchases.
In Q1, Samsung’s net profit was down slightly compared to the same quarter last year, but revenue was up 5.6 percent overall thanks to strong demand for its server and mobile components. The company said that some of its customers are restocking their chip supplies because of supply uncertainty, Reuters notes. Mobile profitability was also up, although shipments were down. Meanwhile, LG’s net profit rose 88 percent compared to the same quarter last year, despite sales being down 1.3 percent. LG credited the strength of its home-appliance division for offsetting sluggish television and smartphone performance.
In the current quarter running from April to June, Samsung and LG both warn of a decline in demand for items like TVs and smartphones. Reuters reports that Samsung expects mobile and TV profits to “decline significantly.” Similarly, LG’s earnings presentation warns of a “sharp” drop for televisions, and for demand of mobile phones to “decline significantly” compared to the same quarter a year earlier.
There are areas where the ongoing pandemic is increasing demand for Samsung’s and LG’s products, however, as a result of people working and studying from home. For example, Samsung said it expects demand for its memory chips to “remain solid” as sales of servers and PCs remain high. LG’s business solutions division, which includes its monitors and PCs, is also expecting strong demand.
Nevertheless, Samsung and LG are expecting the pandemic to take its toll on future results. Samsung said that overall earnings are expected to decline due to a decreased demand for “core products,” and LG said it also expects a drop in both sales and profits next quarter. With financial markets in turmoil, and countries only just starting to “flatten the curve” enough to consider restarting their economies, it’s hard to predict the future. “There will be some time needed for the real economy to actually recover,” said Jong-min Lee, vice president of Samsung’s mobile unit. “It’s difficult for us to see how much of a decrease in demand we’ll see in the second quarter.”