Samsung Electronics posts 40% fall in Q4 net profit, warns of difficult 2016

Seoul: Samsung Electronics reported Thursday a 40 percent on-year drop in fourth-quarter net profit as its once mighty mobile division struggled with slowing demand for smartphones and weaker chip prices impacted its semiconductor unit.

The world`s top handset maker continued to be squeezed at both ends of the lucrative smartphone market with high-end competition from arch-rival Apple matched by cheaper players like China`s Huawei and Xiaomi.

Net profit for October to December stood at 3.22 trillion won (USD 2.7 billion), below analyst expectations and down 39.7 percent from a year ago, the company said in a statement.

Operating profit rose 16.1 percent on-year to 6.1 trillion won, in line with its earlier estimate.

In a statement, the South Korean giant said 2016 was expected to throw up continued challenges to maintaining earnings "due to a difficult business environment and slowing IT demand".

Fourth quarter earnings were down in the face of "global economic headwinds" including a sharp fall in oil prices, as the components side of the business was impacted by weakened prices for DRAM chips and LCD panels due to overall softer demand in the IT market and personal computers.

The strengthening of the Korean Won compared to major currencies meant a positive forex impact in the third quarter "changed to a negative impact" of approximately 400 billion won in the October-December period, it added.

Following the earnings report, shares of Samsung fell 0.9 percent in early trading to 1,164,000 won.Samsung lost more than USD 8.0 billion in market value in 2015, with its flagship smartphone business struggling to hold market share.

Sales of the Galaxy S6 -- the latest edition of Samsung`s top-of-the-range handset, launched in April -- failed to generate much excitement among consumers.

The company`s shares posted a third straight annual decline last year, dropping 5.1 percent.

But Samsung was not alone in being forced to come to terms with a slowing market.

On Tuesday, Apple raised the spectre of the end of a technological era after reporting the slowest growth sales ever of its market-leading iPhone and warning it expects worse to come.

The California technology colossus said it expects to see its first decline in iPhone sales in the current quarter on a year-on-year basis.

Apple`s woes have a knock-on effect for Samsung`s semiconductor division, which, as well as providing components for the company`s own handsets, also makes the processors for a number of other companies -- including Apple.

Losses in Samsung`s mobile division during 2015 were partially mitigated by brisk business in chips and displays.

As Samsung`s reliance on the chip-making business grew, the firm in May began building a new USD 14.3 billion chip plant in Pyeongtaek, 65 kilometres (40 miles) south of Seoul.

This investment in the factory, which is to begin production in 2017, is the largest the firm has ever committed to a single plant.