Samsung Electronics Posts 23% Rise in Profit as Pandemic Spurs Chip Demand
Samsung Electronics has posted surprisingly robust second-quarter profit, driven by high demand for computer chips amid the new work-from-home economy, despite coronavirus affecting smartphone sales.
Beating analyst’s forecasts, the world’s largest manufacturer of memory chips, smartphones and electronic displays posted operating profit for the April-June period at 8.1tn Won ($6.8bn), up 22.7% of last year.
The group’s results indicate the health of Asia’s technology sector in the second quarter, during which the pandemic battered global economies. Chip prices were strengthened by data centres stockpiling chips on account of the surge in online activity. However, analysts warn that this trend would unlikely continue into the third quarter of 2020, due to increasing 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”.
Operating profit was also boosted by one-off gains for Samsung’s display business. Kim Young-woo, an analyst at SK Securities, estimated that the firm received compensation of up to 1tn Won from Apple because of lower than promised display orders. Samsung will provide detailed final results later this month.
Since the outbreak began in January, Samsung has been struggling with disruptions and delays throughout factories and supply chains around the world. However, the group’s memory chip business, a core earnings driver, has remained resilient, experiencing minimal disruption to production at its highly automated chip factories in South Korea and China.
Lockdowns and social distancing imposed by cities from London to New York have led to greater online connectivity during the pandemic. The shift to working from home, and the increase in online learning, has driven demand for much of the back-end infrastructure Samsung manufactures, including computer chips. This has helped buffer the impact of a decline in consumer electronics spending, including smartphones — another key revenue source.
Nevertheless, industry analysts note that memory chip prices have been indicating signs of peaking. D-Ram prices rose 14% in the second quarter but flattened in June compared to May, according to DRAMeXchange. 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.
Additionally, analysts believe Samsung’s smartphone and telecoms network business will likely benefit from fresh tension between the US and China, after Washington recently moved to cut off the supply of computer chips to Huawei, the world’s largest telecoms network group and one of the biggest smartphone producers.