Samsung operating profit falls 34% but beats analyst estimates
Rebound forecast as rollout of 5G smartphones and new data centres boost demand
Samsung Electronics has projected a fifth straight quarterly decline in profit but that guidance was better than expectations, with analysts forecasting a rebound this year in the memory chip market as the rollout of 5G smartphones and new data centres boost demand.
After a decline lasting more than a year, the global memory chip industry is showing signs of recovery as concerns ease over the trade war between the US and China, which hurt demand for tech products. Server customers are also ramping up orders for chips as they expand data centres for cloud computing services.
The world’s largest maker of memory chips and smartphones estimated its operating profit for the last three months of 2019 at 7.1 trillion won, down 34 per cent from a year earlier. But that was better than the 6.5 trillion won average estimate of analysts polled by Bloomberg.
Full-year operating profit suffered its biggest percentage drop in at least a decade, the South Korean company said, falling 53 per cent in 2019 to 27.7 trillion won, the lowest since 2015. Fourth-quarter sales fell 0.5 per cent to 59 trillion won. The company will announce detailed earnings this month.
Chip prices have declined over the past year because of oversupply and slowing demand as smartphone sales stalled. But Samsung’s US rival Micron Technology said last month that the worst was over for the memory chip industry. Spot prices of Dram chips began to rebound in late 2019, according to market researcher DRAMeXchange.
Chip market recovery
Expectations of a recovery in the chip market boosted Samsung’s stock by 44 per cent in 2019, outpacing a full-year gain of 8 per cent for the country’s benchmark index. Shares in Samsung were up 0.2 per cent on Wednesday morning.
Analysts said Samsung’s performance in the semiconductor and smartphone markets was better than expected, although its display earnings worsened due to lower panel prices. Its mobile earnings were boosted by brisk sales of the Note 10 flagship phone and Galaxy Fold foldable phone, they added.
The South Korean company is developing a new clamshell version of its popular foldable phone. It plans to launch a new mobile device in February in San Francisco, but had not said whether it will be a new Galaxy flagship phone or a new foldable phone, or both.
Analysts project Samsung’s operating profit to rise nearly 40 per cent this year.
Yoo Jong-woo, an analyst at Korea Investment & Securities, forecast operating profit in the semiconductor division – which accounted for about half of Samsung’s earnings last year – to jump 85 per cent this year to 25 trillion won.
“The performance of the semiconductor division will improve in the first quarter with the industry recovery likely to continue through next year,” he said.
But analysts added that the recovery in the memory chip market will probably be more moderate than the supercycle of 2017/8. Samsung also warned of more difficult global economic conditions this year, citing rising political uncertainty and a possible fall in consumption.
In addition, Samsung is grappling with uncertainty over the legal troubles facing Lee Jae-yong, the group’s heir-apparent. The 51-year-old vice-chairman is being retried on bribery allegations involving former South Korean president Park Geun-hye.
The verdict, which is expected in coming weeks, could force him to return to prison. – Copyright The Financial Times Limited 2020