Samsung rides surging chip demand to record quarterly profit

  • TECH
  • Friday, 07 Jul 2017

A man uses a mobile phone inside the Samsung Electronics Co. D'light flagship store in Seoul, South Korea, on Wednesday, July 5, 2017. Samsung is scheduled to release earnings figures on July 7. Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co topped analyst estimates with its best-ever operating profit as global demand for semiconductors remained strong and the new Galaxy S8 flagship smartphone won over customers. 

Operating income rose to 14tril won (RM52.10bil) in the three months ended June, the Suwon, South Korea-based company said in preliminary results released July 7. That compares with the 13tril won (RM48.38bil) average of analysts’ estimates compiled by Bloomberg. Revenue rose to 60tril won (RM223.31bil), compared with the 58.4tril won (RM217.33bil) projected. 

The world’s largest maker of phones and memory chips is counting on the Galaxy S8 to repair its reputation and regain ground lost to Apple Inc and Chinese rivals following the demise of the Note 7 device last year. Samsung’s results, which include the first full quarter of sales form the marquee smartphone, shows it’s continuing to benefit from higher prices for the memory chips that go into mobiles and computers. 

“Samsung’s been successful with cutting manufacturing costs for memory chips, and that’s been a big factor, while display sales helped to boost the earnings,” said Greg Roh, an analyst at HMC Investment Securities Co. “Chip prices will keep rising and another record operating profit is in sight for Samsung in the third quarter.” 

The company is on track to earn about 15.2tril won (RM56.54bil) in the third quarter on the back of Galaxy S8 sales, with annual profit of 54tril won (RM200.89bil) this year, Roh said. 

Samsung’s result could see it generate more profit in the second quarter than Apple. The US company is expected to post operating income of US$10.5bil (RM45.09bil), according to the average of analyst estimates, a typically weaker period ahead of the release of its new iPhones. 

Shares of Samsung fell 0.6% in early Seoul trade, paring this year’s gain to 32%. 

Samsung won’t provide net income or break out divisional performance until it releases final results later this month. It probably earned 7.5tril won (RM27.91bil) in chips, 3.8tril won (RM14.13bil) in mobile devices and 1.5tril won (RM5.58bil) in displays such as organic light-emitting diode screens, according to Lee Seung-woo, an analyst at Eugene Investment and Securities. 

The Korean electronics giant posted its best operating profit in the third quarter of 2013 when it earned 10.2tril won (RM37.94bil). While displays and semiconductors have picked up the slack since the Note 7’s recall, the company still gets a significant portion of revenue from smartphones. It hasn’t divulged Galaxy S8 numbers but reviews for the device, which features a bezel-less display and voice-enabled digital assistant, have been favorable. It may also have benefited from the usual lull before Apple releases a new iPhone, typically late in the year. 

DDR3 4-gigabyte dynamic random access memory chips averaged US$2.97 (RM12.76) in the second quarter, compared with US$1.58 (RM6.79) a year earlier, according to data from InSpectrum Tech Inc. 

Samsung may displace Intel Corp as the world’s biggest chipmaker by sales this year, according to Eugene’s Lee. It reclaimed its position as the world’s biggest smartphone maker in the first quarter, after losing the lead due to the Note 7 recall. The company is now counting on the S8 to threaten Apple and widen its lead over up-and-coming rivals such as Huawei Technologies Co and Oppo. 

“Rivals have failed to capitalise on the Note 7 debacle while Samsung has been raking in profits from semiconductors and displays,” Eugene’s Lee said before the results. “The favourable market in semiconductors will probably continue for some time.” — Bloomberg

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