Samsung Electronics Co. Ltd. had a rough first quarter, with the company reporting today that its operating profit fell a massive 60% in the three months ended March.

The size of the drop is stark, but not a surprise. The South Korean technology behemoth warned shareholders to expect declines in the preliminary earnings report it issued last month. Samsung is blaming the poor showing on two main factors: slowed demand for displays and weak performance in its chip business, the company’s main profit engine.

Samsung closed the first quarter with an operating profit of 6.2 trillion Korean won, or $5.3 billion. Revenue dropped 13.5% year-over-year, to 52.4 trillion Korean won, which amounts to $45 billion.

The semiconductor business was hit the hardest among among Samsung’s major divisions. The group’s operating profit plummeted 64%, to the equivalent of $3.5 billion, a decline attributed to lower demand for data center memory chips. DRAM and flash chips account for the bulk of Samsung’s semiconductor revenue, though the company also has a processor business that it’s expanding aggressively in pursuit of new income streams.

Another unit that took a hit in the second quarter is Samsung’s mobile division. Strong demand for the company’s newest Galaxy S10 flagship didn’t stop the group’s operating profit from falling 40%, to the equivalent of $2 billion. The company’s display business dipped into the red and booked a $480 million loss.

The second quarter results mark Samsung’s worst operating profit in two years. However, there was a silver lining in today’s earnings report. The company said that it expects the most heavily impacted divisions to rebound somewhat in second half of 2019 thanks to new smartphone sales.

Samsung sees consumer demand for handsets driving manufacturers to buy more of its memory chips and flexible OLED displays, which can be found in the Galaxy S10, among other devices. The company also supplies screens for devices from other handset makers including Apple Inc.’s iPhones.

Amid the intense competition in the smartphone market, Samsung is betting on new form factors to try to attract consumers’ interest. Its boldest gamble so far has been the Galaxy Fold. The foldable smartphone sold out on the company’s online store within a day of becoming available for pre-order, but Samsung was forced to delay the device’s release because of issues with early test units.

Photo: Samsung