Tech sector reels from Samsung profits woe
Electronics giant Samsung became the latest technology firm to deal a blow to global markets today when it revealed net profits slumped 52% in its first quarter.
Lower profit margins on mobile phones and a fall in the price of flat-screen televisions were mainly to blame as Samsung joined US giants IBM and Apple in disappointing investors.
The weakness in the technology sector contributed to the FTSE 100 Index as much as 42 points today to put it in danger of sliding to its lowest level for three months.
Among those to feel the backlash in London was Sage Group – the only technology stock left in the Footsie – which lost nearly 2% of its market value. It sells accountancy software to small and medium-sized businesses, which are most likely to feel the squeeze from any downturn.
The reaction was strongest in the United States where the Dow Jones Industrial Average fell 125 points to its lowest level so far this year, while Japan’s Nikkei weakened 1.7% overnight.
Investors often view the technology sector as reflecting the health of the global economy as a whole as firms invest in hardware and consumers splash out on electronic goods when they are confident about the future.
Samsung said it expected a gradual recovery in demand for DRAM (dynamic random access memory) chip prices in its second quarter, offering some comfort to investors after net profits fell short of market expectations.
The update came less than 24 hours after IBM fuelled jitters in the sector by reporting earnings well shy of expectations, with most of the weakness coming from Europe and Japan.
It warned that a restructuring may now take place to revive sales with reports in the US suggesting thousands of jobs could be lost in Germany and Sweden.
And iPod maker Apple lost nearly 10% of its value after its forecasts for revenues failed to match those of the market even though its first-quarter figures were in line.
