Samsung projects 23% rise in quarterly profit despite pandemic

Samsung Electronics has projected unexpectedly robust second-quarter profit boosted by strong demand for computer chips as the work-from-home trend picks up, even as coronavirus battered smartphone sales.

The world’s biggest producer of computer chips, smartphones and electronic displays estimated operating profit for the April-June quarter at Won8.1tn ($6.8bn), up 22.7 per cent from a year earlier. That was much better than the Won6.3tn analyst forecast by Refinitiv SmartEstimate. Samsung estimated that sales fell 7.4 per cent to Won52tn in the quarter.

The South Korean group’s results are a bellwether for the health of Asia’s technology sector in the second quarter, during which the pandemic pummelled economies around the world. Chip prices were boosted by data centres stockpiling chips as online activity surged, but analysts cautioned that trend was unlikely to continue in the second half of the year because of growing economic uncertainty.

“Given a spike of Covid-19 cases in major developed and emerging market countries, tech companies in the supply chain are likely to turn more conservative on their business strategy in the second half of this year,” said CW Chung, head of research at Nomura in Seoul.

“The semiconductor industry momentum is likely to slow in the third quarter,” he added, though “smartphone sales are likely to bottom out, making up for slowing chip sales to some extent”.

One-off gains for its display business also buoyed operating profit. Kim Young-woo, an analyst at SK Securities, estimated that Samsung received compensation of as much as Won1tn from Apple for lower-than-promised display orders.

Samsung will provide detailed final results later this month.

Since coronavirus emerged in the Chinese city of Wuhan in January, Samsung has grappled with disruptions and delays at factories and supply chains around the world.

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But its memory chip business, a core earnings driver, has been resilient, with little disruption to production at its highly automated chip plants in South Korea and China.

The lockdowns and social distancing instituted in cities from London to New York have sparked greater online connectivity during the pandemic. The shift toward working from home and an increase in online learning has boosted demand for much of the back-end infrastructure Samsung produces, including computer chips.

That has helped cushion the impact of a decline in spending on consumer electronics, including smartphones — another important revenue source.

However, memory chip prices were showing signs of peaking, analysts noted. D-Ram prices rose 14 per cent in the second quarter but were flat in June versus May, according to DRAMeXchange.

Shares of Samsung were down 1.6 per cent on Tuesday morning, while the benchmark Kospi index was off 0.4 per cent. 

Analysts expect second-half earnings to be boosted by a rebound in smartphone sales, with Samsung planning to launch a new foldable phone and a new Note flagship smartphone.

“Both Samsung and Apple have set aggressive sales targets as they try to steal market share from Huawei,” said Mr Kim.

Analysts say Samsung’s smartphone and telecoms network business is poised to benefit from renewed tension between the US and China, after Washington recently moved to cut off the supply of computer chips to Huawei, the world’s biggest telecoms network group and one of the largest smartphone producers.