Samsung warns phone, TV sales will ‘decline significantly’ because of coronavirus

Samsung’s new Galaxy S20 lineup and Galaxy Z Flip weren’t enough to boost phone demand in the first quarter — and the worst is yet to come. The novel coronavirus, which is sweeping the globe, will “significantly” hurt the South Korean electronics giant’s operations in the coming months, Samsung warned Tuesday. 

“Looking ahead to the second quarter, the company expects the memory business to remain solid, but overall earnings are likely to decline from the previous quarter because COVID-19 will significantly impact demand for several of its core products,” Samsung said in a press release. 

Demand for memory chips for servers and PCs will be “robust” as more people work work from home, the company said. But sales of smartphones and TVs likely will “decline significantly,” Samsung said, as COVID-19 hurts demand and leads to store and factory closures around the world. The company said it will strengthen its online sales capabilities and leverage its global supply chain and production operations. 

“In the second half, uncertainties driven by COVID-19 will persist as the duration and impact of the pandemic remain unknown,” Samsung said. 

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The new coronavirus, which causes an illness called COVID-19, was first detected in the Chinese city of Wuhan late last year. Since that time, it’s become a full-blown pandemic, infecting over 3.1 million people around the globe. 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. 

Samsung’s home of South Korea was one of the first markets to get hit by the coronavirus pandemic. The company temporarily shuttered factories, and it also has closed its four US stores. Earlier this month, Samsung introduced a new lineup of A Series phones in the US. The devices start at $110, and Samsung hopes they’ll appeal to more budget-conscious buyers, including the tens of millions out of work in the US.

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.

Phone struggles

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.

Samsung earlier this month became one of the first tech companies to show how the novel coronavirus was impacting business. The company at the time said its sales for the March quarter would rise to about 55 trillion Korean won ($44.9 billion) but won’t be quite as strong as the 56.4 trillion won ($50 billion) Wall Street anticipated at the time. Analysts most recently projected revenue of 55.5 trillion won ($45.5 billion), according to a poll by Thomson Reuters. 

Samsung on Tuesday reported sales of 55.3 trillion won ($45.3 billion), while its operating profit totaled 6.45 trillion won ($5.3 billion). 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 benefited from higher demand for server and phone components. While Samsung is the world’s biggest phone and TV vendor, it also has a huge business selling memory chips to device makers around the globe. Samsung’s chip business has been getting a boost from data centers that rely on the technology to store everything we’re doing online.

Apple, too, has been hurt by COVID-19’s spread. The company 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. The company will report its quarterly earnings on Thursday.

Earlier Tuesday, Alphabet, the parent company of Android maker Google, reported better-than-expected earnings for the first quarter of the year, though it warned that the company saw a “significant slowdown” of revenue in March after the COVID-19 crisis began to take hold. Google is a close partner to Samsung, with the South Korean company relying on Android to power its phones.