Samsung Electronics on Wednesday announced a 56 percent plunge in operating profit in the second quarter due to the sluggish performance of its two main divisions -- memory chips and smartphones -- amid weakening market conditions.

The South Korean tech giant posted consolidated sales of 56.13 trillion won and 6.6 trillion won in operating profit in the April-June period.

Its quarterly sales and operating profit decreased 4 percent and 56 percent, respectively, from the same period last year. 

Compared to the third quarter of 2018, when Samsung reported its largest-ever quarterly operating profit of 17.57 trillion won, the second-quarter figure was reduced to a third.

The overall decline stemmed largely from its most lucrative chipmaking business that registered the smallest operating profit of 3.4 trillion won since the third quarter of 2016, due to continuing price declines.

The semiconductors division posted 16.09 trillion won in sales.

The chipmaking division’s operating margin slid 55.6 percent in the first quarter of last year to 21.1 percent in the second quarter. The second-quarter operating margin recorded a recent low dating to the second quarter of 2014.

“The weakness and price decline in the memory chip market persisted as effects of inventory adjustments by major data center customers in the previous quarters continued, despite a limited recovery in demand,” a company official said during a conference call.

According to DRAM eXchange, the average price of 8-gigabit DDR4 more than halved from $7.25 at the end of last year to $2.94 in July.

Unlike SK hynix, the world’s second-largest memory provider, Samsung is not considering any move to cut production of its memory chip products.

After announcing a whopping 89 percent plunge in its second-quarter operating profit, SK hynix said it will start reducing DRAM production in the fourth quarter.

US-based memory maker Micron has announced it will reduce DRAM production by 5 percent this year due to the decline in prices.

“The company is not considering any intentional reduction in wafer input,” said Jeon Se-won, vice president at Samsung’s memory chip business.

“Work to improve efficiency of production lines is underway flexibly in response to demand.”

Samsung has been realigning its equipment and operations at its DRAM lines since early this year, which could naturally lead to an overall decline in output.

The company’s mobile division also reported a 41.6 percent in operating profit from a year earlier, suggesting the smartphone market is still stagnant.

It earned 25.86 trillion won in sales and 1.56 trillion won in operating profit.

“The smartphone unit posted stronger shipments on new mass-market models but was weighed down overall by slower sales of flagship Galaxy S10 phones and increased marketing expenses,” the official said.

Meanwhile, the network unit posted solid results on the commercialization of 5G services in Korea.

The consumer electronics division showed a slight increase in quarterly operating profit, from 510 billion own in the second quarter of last year to 710 billion won this year, on modest sales of the newest QLED TVs.

In the second quarter alone, Samsung’s capital expenditure stood at 6.2 trillion won, including 5.2 trillion won spent on semiconductors and 500 billion won on displays.

The total capital expenditure in the first half was 10.7 trillion won, including 8.8 trillion won for semiconductors and 800 billion won for displays.

“The annual capex (capital expenditure) hasn’t been confirmed yet,” a company official said. “But some investments will be executed in the second half of the year as part of efforts to build infrastructure for mid- and long-term demand.”

By Song Su-hyun (song@heraldcorp.com)