Profits in 4Q are projected to decline as chip demand weakens and competition in smartphone and consumer electronics market heightens
SEOUL • Samsung Electronics Co Ltd’s net profit jumped by almost half in the third quarter (3Q), it reported yesterday, as the South Korean giant’s mobile and chip businesses were boosted by US sanctions against Chinese rival Huawei Technologies Co Ltd.
The world’s biggest memory chip maker said profits in July-September climbed 48.8% year-on-year to 9.36 trillion won (RM37.44 billion), beating expectations according to Bloomberg News.
But the company warned that profits in the current quarter are projected to decline, with chip demand weakening and competition intensifying in the smartphone and consumer electronics market.
The firm is the flagship subsidiary of the giant Samsung Group, by far the biggest of the family-controlled conglomerates that dominate business in the world’s 12th-largest economy, and it is crucial to South Korea’s economic health.
The figures come a day after the burial of late chairman Lee Kun- hee — who turned the firm into a global powerhouse — and as the coronavirus wreaks havoc with the world economy.
But despite the pandemic hammering many economies, South Korea returned to growth in the 3Q, driven by a better than expected exports performance.
The country is now widely expected to be among the least affected in the Organisation for Economic Cooperation and Development group of developed economies in 2020 in terms of economic performance.
Analysts said Samsung’s rollout in August of its latest premium smartphones — the Galaxy Note 20 and the Galaxy Z Fold 2 — coupled with strong sales of mid-range phones led the firm’s 3Q performance.
A US ban on foreign companies providing Huawei with US-origin technology, which came into effect on Sept 15 — cutting off essential supplies of semiconductors and software needed for making smartphones and 5G equipment — also provided a boost.
“Samsung has been quite aggressive in new launches as well as channel strategies, riding on the ongoing anti-China sentiment,” Prachir Singh, a senior analyst at market observer Counterpoint, told AFP.
A reduction in marketing costs due to the pandemic was “also helpful in terms of operating profit” for Samsung, said Sujeong Lim, another analyst at Counterpoint.
The firm’s memory business also benefitted from the feud after Huawei rushed to stock up on Samsung-made semiconductors before the US restrictions kicked in. That segment “posted solid earnings as healthy demand for mobile and PC products led to higher than expected shipments, outweighing the impact of lower memory chip prices”, the firm said in a statement. Operating profit rose 58.7% to 12.35 trillion won. Sales rose 8% to 66.96 trillion won — a record for any quarter.
But the firm’s immediate prospects may not be quite so rosy. Samsung warned its smartphone sales for October-December are expected to decline because of “subsiding effects from new flagship model launches”, while higher marketing spending in the face of intensifying competition “is also likely to weigh down profit”.
Earlier this year, the firm was dethroned by Huawei from its long-held position as the world’s biggest smartphone maker as the Chinese economy recovered from Covid-19. Samsung Electronics still leads the global DRAM chip market, with a 43.5% share in April-June, according to market researcher TrendForce.
Server DRAM chips enjoyed a boost as the pandemic prompted working from home and online classes — but were now experiencing “significant oversupply”, it said in a report.
Samsung Electronics’ shares closed down 1.53% in Seoul yesterday. — AFP