Samsung forecasts 2Q profit jump despite virus

SOUTH KOREA • Samsung Electronics Co Ltd forecast a 23% rise in its second-quarter (2Q) operating profit yesterday with strong demand for memory chips and displays overcoming the impact of the coronavirus pandemic on smartphone sales.

The world’s biggest smartphone and memory chipmaker said in an earnings estimate that it expected operating profit to be 8.1 trillion won (RM29.16 billion) for April-June, up from 6.6 trillion won in the same period last year.

The prediction was far ahead of analyst forecasts of a single-digit decline.

Lockdowns imposed around the world in the face of the coronavirus pandemic, especially in Europe and the US, have boosted Samsung’s chip business with data centres moving to stockpile the dynamic random-access memory (DRAM) chips to meet surging demand for online activities.

“The earnings surprise seems to have stemmed from Samsung’s memory chip sector,” said Park Jin-suk of market observer Counterpoint Research, pointing to “increased demand for memory chips for PCs and a continuing rise in DRAM chip prices”.

Similarly TV sales, which have been on a long-term decline, were “moving upward as people spend more time at home”, said James Kang, an analyst at market observer Euromonitor International Korea.

Samsung attributed the estimated operating profits rise to a one-off profit generated from its display division, without offering details. The company predicted the overall sales in the 2Q would be down by 7.3% from a year earlier.

The firm is the world’s largest smartphone maker, accounting for 20% of global market share in the 1Q — ahead of China’s Huawei Technologies Co Ltd with 17% and Apple Inc on 14%, according to Counterpoint.

Global smartphone sales slumped more than 20% year-on-year (YoY) in the 1Q, their worst performance ever, according to market tracker Gartner Inc, as the pandemic hit consumer spending and sparked widespread economic uncertainty.

Looking forward, analysts expect the firm’s smartphone and TV businesses to improve, with mobile sales growing as restrictions are lifted in some parts of the world.

“Smartphone’s sales in the US and Europe showed signs of improvement from late in the 2Q,” said Park.

“Going into the 3Q, we expect the sales figure to rise,” he added, predicting smartphone sales in the low 70 millions for July-September.

A recent military brawl between India and China also could play in Samsung’s favour, Kang said, adding that if Indian consumers choose Samsung devices over Chinese brands amid heightened nationalistic sentiment against Beijing.

Despite the positive forecast, Samsung shares closed down 2.9% yesterday, leaving them nearly 15% off January’s record high.

LG Electronics Inc, South Korea’s second-largest appliance firm after Samsung, forecast 2Q operating profits would plunge 24.4% YoY to 493.1 billion won. — AFP