Samsung Q1 19 – Bad apples.

Samsung is looking better than Apple.

• Samsung has warned that its Q1 2019 performance will miss expectations which is most likely a sign of further weakness to come at one of its biggest customers, Apple.
• As is usual with Samsung, this was already fairly widely known as the share price has barely moved following the announcement, but the big question is Apple.
• Samsung has not given any financial details, but market expectations were already pretty cautious with Q1 19 revenue expected to fall by 11% YoY to KRW53.7tn and EBIT by 54% to KRW7.2tn.
• DRAM memory pricing appears to have been the main culprit with prices down by more than 20% in Q1 2019 (DRAMeXchange) but also weakness in its display business.
• Samsung is the main supplier for the OLED panels used in the higher priced iPhone models which by all accounts have experienced further weakness in Q1 19.
• This is most likely due to a combination of a maturing market for smartphones and what I consider to have been a strategic misstep by Apple when it comes to price (see here).
• Its latest devices are simply too expensive compared to older models and compared to Android devices which have once again taken a step forward when it comes to hardware specification.
• This includes under-screen fingerprint scanners, camera hardware, computational photography as well as innovations to remove or minimise the screen notch.
• Consequently, I think this is sending a negative signal for Apple for the next couple of quarters.
• Samsung had already brought expectations down at its Q4 18 results as well as its AGM and now it is doing it again for the third time.
• I think that the outlook for Samsung is much brighter than for Apple as these expectations have already been absorbed by the Samsung shareholders and the s10 is interesting and different enough product to trigger some upgrades.
• Apple, on the other hand, looks set to disappoint its fans once again and the stock has had a great rally during Q1 19.
• Looks like a short-term switch from Apple to Samsung is warranted.