Samsung Electronics warns of difficult 2016 as smartphone market peaks

SEOUL (Se Young Lee for Reuters) — Tech giant Samsung Electronics Co Ltd on Thursday warned of possible weaker earnings this year compared with 2015 due to softer sales of gadgets such as smartphones, a trend that is also hurting rival Apple Inc and major chipmakers.

The South Korean firm’s warning came a day after Apple shares fell more than 6.5 percent, the biggest percentage drop in two years, as the iPhone maker forecast its first quarterly sales drop in 13 years.

“Broadly weaker IT demand will make it difficult to maintain 2016 profits at the level of the previous year’s,” Samsung said in a statement accompanying its fourth-quarter profit results, adding that “challenging business conditions” would remain for the current quarter.

Samsung said its October-December operating profit was 6.1 trillion won ($5.05 billion), compared with 6.1 trillion won it guided for earlier in January. Revenue rose 1.1 percent to 53.3 trillion won, compared with 53 trillion won it guided for.

The maker of Galaxy smartphones and tablets reported a full-year operating profit of 26.4 trillion won, compared with 25 trillion won in 2014.

Samsung shares were down 1.9 percent as of 0028 GMT (1928 ET), underperforming a 0.5 percent fall for the broader market.

Slowing economic growth in China and weaker emerging market currencies are undercutting sales of electronics ranging from televisions to personal computers, spelling trouble for not only for Samsung and Apple Inc but for their suppliers and the broader industry.

Some investors and analysts believe Samsung will see its profit fall for the second time in three years in 2016, as slack demand for gadgets undercuts prices of memory chips and displays thatSamsung leaned on to cope with its mobile profit decline last year.

The semiconductor division’s operating profit rose to 2.80 trillion won from 2.70 trillion won a year earlier, remaining the top earner for the sixth straight quarter.

The mobile division’s profit climbed to 2.23 trillion won from 1.96 trillion won a year earlier.Samsung said first-quarter mobile profits would improve slightly from October-December due to the launch of new smartphones, although overall shipments were expected to decline.

Separately, Samsung said it planned to buy back and cancel 2.99 trillion won worth of common and preferred shares, marking the second round of share purchases as part of a 11.3 trillion buyback plan announced late last year.

The firm would also pay a year-end dividend of 20,000 won per share.

(Reporting by Se Young Lee; Editing by Stephen Coates)