Consumers browse devices at a Samsung store in Shanghai in March. Photo: VCG

Samsung Electronics is likely to say their second-quarter profit has been more than halved when it reports preliminary earnings on Friday, data showed, as a drop in memory chip shipments to China's embattled Huawei exacerbated a price-squeezing supply glut.

The quarterly result would be the South Korean firm's lowest in nearly three years, with the prospect of an earnings recovery still some quarters away, as a period of oversupply continues unabated amid a broader slowdown in tech markets, analysts said.

The world's biggest supplier of DRAM and NAND memory chips is also the world's largest maker of smartphones, a market in which chip client Huawei is in second place. Companies worldwide have been forced to restrict business with Huawei in order to comply with US trade sanctions on a company Washington deems a security risk.

"How much Huawei will use chips in the future is definitely a swing factor for prices," said analyst Jay Kim at Sangsangin Investment & Securities. "When there are not many players who can buy chips instead of Huawei, then Samsung has to cut prices to sell them."

Though chip earnings took a hit from reduced Huawei custom, Samsung Electronics Co's smartphone business is likely to benefit from a drop of as much as 40 percent in Huawei handsets' international sales. Thus far, however, Huawei Technologies Co Ltd has strong enough support at home in the world's largest smartphone market to retain its global ranking.

Even so, chips sales draw in the majority of Samsung's profits - over two-thirds - and a saturated smartphone market and falling demand from data centers have pulled prices down.

Prices for DRAM chips, which provide devices with temporary workspaces and allow them to multi-task, are unlikely to rebound in the second half of the year, said analyst Avril Wu at tech researcher TrendForce. Moreover, she said, it will be difficult for Samsung to clear its inventory until the first half of 2020.

TrendForce estimates DRAM prices in the three months through to June fell 25 percent. Last month, it lowered its forecast for the July-September quarter to a decline of 15 to 20 percent, from 10 percent.

On Friday, Samsung is likely to flag a 60 percent decline in April-June operating profit at 6 trillion won ($5.14 billion), according to Refinitiv SmartEstimate, based on the estimates of 29 analysts, with the estimates of analysts historically more accurate and given greater weighting.

The tech firm booked 14.9 trillion won in the same period a year earlier. It is due to publish final second-quarter figures later this month. Its shares rose 5.3 percent over the three months.

Trade troubles

Huawei is the world's largest maker of telecommunications equipment, and just as the impact of its US predicament ripples through both the chip and smartphone sectors, tech firms such as Samsung have also become collateral damage in a broader Sino-US trade war punctuated by tit-for-tat import tariffs.

Samsung could also be on the receiving end of Japanese curbs on exports to South Korea of high-tech materials used in chips and smartphones - a retaliatory measure to South Korean wartime compensation claims that Japan says were resolved decades ago.

Still, in the long run, good news for Samsung could lie in Huawei's troubles. If US sanctions remain, Samsung could sell 37 million more smartphones annually, said senior analyst Song Myung-sup at HI Investment & Securities. Moreover, it would likely install its own chips in those handsets, Song said.