Weak Apple iPhone sales are hurting Samsung

Lower chip prices and a drop in demand for its OLED panels led Samsung to announce in a filing Tuesday morning that its first quarter profit won't meet analysts' expectations. It was just last week when the company said during its annual stockholder's meeting that slower growth in the global economy, combined with weaker memory chip sales, would be a drag on earnings this year.

Samsung is scheduled to report its first quarter earnings next week. Market estimates provided by Refinitiv SmartEstimate call for the company to report an operating profit of 7.2 trillion won (equivalent to $6.4 billion USD) for the period from January through March. That would be a 54% decline year-over-year from the 15.6 trillion won profit that Samsung recorded during the same period last year. Revenue is expected to decline from $60.6 trillion won to $53.7 trillion won, a drop of 11.4%.

Earlier this month, Samsung released the Galaxy S10e, Galaxy S10 and Galaxy S10+. The "lite" Samsung Galaxy S10e earned a 9.2 (out of 10) in our review of the model, while the other two phones each scored a 9 (again, out of 10).

Besides introducing its new flagship models, Samsung launched its new wireless Galaxy Buds this month as well. Some of the initial sales from the accessory and Galaxy S10 line will be included in the first quarter results. Before the new units hit the market, Samsung was struggling with 2018's Galaxy S9 and Galaxy S9+ as the company had to resort to heavy discounts to help clear the warehouse. Even the Galaxy Note 9 has not been bullet-proof, although the device might have some life left since the Galaxy Note 10 is still a few months away.

Next month, Samsung will launch the Samsung Galaxy Fold; the device has a 4.6-inch exterior screen and opens to become a 7.3-inch tablet. While this model carries a very high price tag of $1,980, it initially will be available in limited quantities. As a result, the phone might not be able to lift Samsung's earnings during the second quarter.

Selling handsets might be the sexy part of Sammy's business, but selling components to rivals is really Samsung's bread and butter. The company, which supplies rival Apple with AMOLED panels and other parts, was said to have made $110 from 2017-2018 on every iPhone X sold. It most likely continues to derive huge profits on each iPhone sold, but sales of the 2018 models are sluggish at best, contributing to the decline in Q1 revenue and profits. In fact, the entire smartphone business has seen tepid demand, and this has had a very negative impact on Samsung's business as a supplier to handset manufacturers.

The news doesn't appear to be terribly shocking to investors. In Korea, Samsung's shares are trading at 45,200 won ($39.94 USD), down .66% on the day.