Samsung, stung by trade war, expects big plunge in profits

US President Donald Trump's trade war with China has been felt around the world. The latest casualty: the South Korean electronics giant Samsung Electronics.

The company said Friday that it expected its second-quarter operating profit to fall more than 50 per cent, to 6.5 trillion won (about NZ$8.5 billion). It managed to beat analysts' expectations only because of a onetime gain in its display business.

Samsung's disclosure Friday illustrated the troubles that an escalating series of trade fights are wreaking on the global economy, particularly for huge companies that sell finished products as well as components around the world.

Samsung, a leading producer of the components in an array of gadgets, was already experiencing a slowdown in sales of smartphones and other technology products. It has been particularly hurt by a glut of memory chips.

The continuing trade dispute between the United States and China has made things worse for the company. The Trump administration's restrictions on sales to Huawei, a major buyer of Samsung memory chips, has reduced demand for the company's chips and forced it to cut prices. Although Trump recently said he would relax some of the restrictions, it remains unclear how far the easing will go.

That decline in Samsung's memory-chip business will probably be greater than whatever gains its smartphone division may reap from any drop in sales of Huawei's competing products.

Samsung has also been forced to contend with added costs resulting from import tariffs imposed on washing machines by the Trump administration in a move meant to protect US competitors like Whirlpool.

Other trade fights could cause more pain in the short term. Japan recently imposed export limits on materials used to make displays and computer in South Korea, which are expected to hurt Samsung and a top rival, SK Hynix.

And a broader economic slowdown worldwide could reduce demand for Samsung's array of products, which also include televisions and audio speakers.

Samsung is expected to report its full results later this month.

Written by: Michael J. de la Merced

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