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Samsung posts steep drop in Q3 profit on weak chip demand

Declining demand for chips hurts the electronics giant's bottom line.

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Samsung's mobile division showed improvement during the company's third quarter.

James Martin/CNET

Samsung was hit hard in its third quarter by the slowdown in tech. The company on Wednesday reported a steep drop in operating profit amid ongoing weakness in the chip industry. But the company's bottom line was buoyed by stronger smartphone sales.

The South Korean electronics giant reported its third-quarter operating profit for the three-month period ending on Sept. 30 came in at 7.7 trillion won ($6.6 billion), a drop of nearly 56% from the year-ago period. It also said its revenue dropped 5.3% to 62 trillion won ($53 billion).

Both amounts were slightly better than what analysts expected, according to Thomson Reuters, but they mark a sharp reversal from the same period a year ago -- Samsung's best ever.

The company bucked general weakness in the smartphone market, which has suffered from increasing phone prices and consumers upgrading less often. But in the third-quarter, revenue from its mobile division increased 17.4% to 29.25 trillion won. The company credited strong sales of its Galaxy Note 10 and A-series phones.

"Mobile earnings in the third quarter improved significantly [quarter on quarter] on robust shipments of the flagship Galaxy Note 10, a better product mix and higher profitability in the mass-market segment," Samsung said in its earnings statement. "The Galaxy Note 10 in the third quarter exceeded its predecessor's sales performance, presenting double-digit growth in volume."

Samsung has been counting on its less expensive handsets, specifically its A-Series devices, to get consumers shopping again. It's unlikely the new Galaxy Fold, which starts at $1,980, will boost its financial results. But Samsung sees the foldable as the future of smartphones.

Samsung said it expects smartphone shipments to decline in the fourth quarter year-over-year as flagship sales weaken after post-launch highs.

Samsung is best known as the world's biggest phone and TV maker, but it also sells more memory chips than any other company on the planet. It generates more revenue from semiconductors than any other vendor, including the former long-term leader, Intel.

But when prices and demand for chips fall, Samsung takes a hit -- as it did in the third quarter. Revenue from the company's semiconductor business fell 29% to 17.59 trillion won. But the company said it's optimistic that the sector will see a slight rebound.

Looking ahead, Samsung said 2020 should be "viewed with caution" amid economic uncertainties, but it sees signs of increased demand from data centers and expansion of 5G smartphones.