Another major Apple supplier just delivered potential bad news for the iPhone X

  • Samsung Electronics warned that it may be challenging to generate overall earnings growth across the company due to a slowdown in the global smartphone market.
  • The South Korean tech giant predicted in the second-quarter it could see weakness in the display panel segment and a decline in profitability in the mobile business.
  • The warning came after Samsung posted record profits for the January-March quarter, driven largely by a robust memory chip business.

Samsung Electronics posted record first-quarter profits on Thursday, but warned about a slowdown in its display panel segment.

That could be bad news for Apple’s iPhone X.

“Generating overall earnings growth across the company will be a challenge due to weakness in the display panel segment and a decline in profitability in the mobile business amid rising competition in the high-end segment,” Samsung said in a statement.

The display panel business makes organic light-emitting diode, or OLED, screens for both its own smartphones but also for the iPhone X.

Samsung said in its first-quarter earnings announcement that the display panel segment profits were “affected by the slow demand for flexible OLED panels.” For the second-quarter, the company predicted the same weakness to persist and said it would do cost-cutting and improve efficiency.

The company’s predictions came after key iPhone supplier Taiwan Semiconductor Manufacturing (TSMC) warned about slower growth in smartphone chip sales. TSMC said its revenue forecast range for the second quarter is $7.8 billion to $7.9 billion, lower than Wall Street estimate of $8.8 billion. The company blamed “weak demand” in the mobile sector for the forecast.

Another key Apple supplier gave dramatically lower June quarter guidance. Austria-based AMS, which provides optical sensors used in the iPhone X, said it expects sales for its second quarter to be in the range of $220 million to $250 million, down nearly 50 percent from its first quarter.

Wall Street blamed poor iPhone X demand for both TSMC and AMS’ weak guidance.

One analyst predicted that Apple could be poised to kill off its iPhone X line this year.

Looking ahead

Samsung said it expects second-quarter mobile earnings to drop on a quarterly basis because of a slowdown in sales of its flagship smartphones including the Galaxy S9 as well as higher marketing expenses.

Global smartphone demand fell marginally in the first quarter of 2018, according to a new report from market research firm Gfk. It said demand for smartphones worldwide declined by 2 percent to 347 million units. China and the United States, two large markets, saw particularly sluggish demand.

The average sales price for smartphones grew 21 percent on-year for the same period, the Gfk report said. As such, revenue rose 18 percent on-year globally to $129.8 billion despite the decline in demand.

Samsung also predicted the memory chip business, which is the main revenue driver, to “maintain its strong performance.” It expects solid demand from data centers and smartphones for both DRAM and NAND memory chips.

Data center demand is expected to offset any weakness seen in the smartphone market, according to Mark Newman, managing director and senior analyst at Sanford C. Bernstein.

“Data center spend is huge,” Newman told CNBC’s “Squawk Box,” adding that many tech companies are “expanding capacity in data centers very, very vastly. And that needs lots more memory, particularly DRAM. So that’s actually at the moment more than offsetting the weakness in handsets.”

Newman added that Samsung would still remain the “undisputed leader in memory.”

Samsung posted an operating profit of 15.64 trillion Korean won ($14.45 billion) for the three months that ended March — in line with an earlier estimate and a 58 percent on-year jump.

The world’s largest smartphone vendor’s consolidated revenue came in at 60.56 trillion won. The company said its first-quarter revenue was mainly driven by its memory chips business and the increased sales of its flagship smartphones such as the Galaxy S9.

— CNBC’s Tae Kim and Reuters contributed to this report.

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