Samsung's preliminary Q1 results show how coronavirus is impacting tech

Samsung on Monday became one of the first tech companies to show how the novel coronavirus is impacting business. The company said its sales for the March quarter will rise from the previous year but won't be quite as strong as Wall Street anticipated.

Samsung said it expects to report first-quarter sales of about 55 trillion Korean won ($44.9 billion) and an operating profit of about 6.4 trillion Korean won ($5.2 billion). 

Samsung's preliminary Q1 results show how coronavirus is impacting tech Picture 1

Analysts predicted the company would report March quarter revenue of 56.3 trillion won ($50 billion), according to a poll by Thomson Reuters, which is slightly higher than the top of Samsung's guidance range of 54 trillion to 56 trillion won. A year ago, Samsung reported revenue of 52.4 trillion won ($42.8 billion) and an operating profit of 6.2 trillion won ($5.1 billion).

The company doesn't provide details about its quarterly performance until releasing its full results later in April. It's likely Samsung benefited from strong chip sales but took a hit in its smartphone business as people held off on pricey purchases amid worries about the coronavirus. 

The new coronavirus, which causes an illness called COVID-19, was first detected in the Chinese city of Wuhan late last year. The World Health Organization in March labeled COVID-19 a pandemic, and the virus since then has changed the way we live. The outbreak has caused cities and entire countries around the globe to issue lockdowns, shuttering stores, canceling events and ordering citizens to stay at home to help contain the coronavirus. As of Thursday, over 1.3 million people worldwide have been infected, and over 73,000 have died. 

Samsung's home of South Korea was one of the first markets to get hit by the coronavirus pandemic. While it's on its way to recovery, other major market like the US haven't yet hit their peak for infections. 

Phone struggles

2020 was supposed to be a strong year for the phone industry, as innovations like 5G and foldable screens got people shopping again. Instead, financial struggles and worries about COVID-19 will limit the number of devices companies can make and how many phones people will actually buy. Even once the worst of the pandemic is behind the US and other markets, the global economy will likely continue to struggle.

Smartphone shipments saw their biggest ever drop in February -- down 38% to 61.8 million units, according to Strategy Analytics -- as the novel coronavirus ravaged China, one of the world's largest markets and a vital manufacturing hub. For this whole year, phone sales should hit a 10-year low. Shipments of mobile phones, which include flip phones, likely will drop 13% to 1.57 billion units in 2020, while smartphone shipments should tumble about 11% to 1.26 billion units, according to CCS Insights. 

The forecast echoes what some tech companies have warned. Apple in January said the coronavirus would hurt its revenue and iPhone supply. China is one of Apple's biggest markets and the primary location where its devices like the iPhone are assembled. Because factories closed during the peak of the coronavirus outbreak in China, it caused iPhone shortages around the globe, Apple said. Since that time, Apple has reopened its stores in China but has closed all retail locations outside the region, indefinitely.

Samsung also temporarily closed its factories on worries about coronavirus. It builds most of its phones in South Korea and Vietnam. 

In January, Samsung reported the end to a rough year -- a day after its chief rival Apple posted an all-time high in revenue and earnings and reclaimed its title as the world's biggest smartphone maker. Samsung at the time said its fourth-quarter operating profit tumbled by 34% to 7.16 trillion won ($6 billion). Its overall revenue edged up 1% to 59.88 trillion won ($50.6 billion). Last year marked its worst performance since 2015. Samsung has been counting on its Galaxy S20 lineup, as well as 5G and expansion into less expensive phones, to help its results. 

While Samsung saw "solid sales of flagship smartphones" in the fourth quarter, its components business -- 41% of its revenue last year -- has been hurt by falling memory chip prices and weak demand for display panels. 

Samsung's chip business is likely getting a boost right now from data centers that rely on the technology to store everything we're doing online. But the business could struggle if people buy fewer phones, which is another big market for Samsung's memory chips.