Samsung expects hit to profit even after recent sales surge

Ruben Fields
October 31, 2020

The third-quarter operating profit was a 52% increase from KRW 8.15 trillion ($7.2 billion) realised in Q2 2020. The company reported total revenue of KRW 66.96 trillion ($59.1 billion) during the quarter, thanks to strong consumer demand and flexible supply chain management. Sales of tablets and wearables also increased, and operating profit was supported by structural improvements in component standardization and marketing efficiency. Its semiconductor and display business follows in second as per sales in the Q3, and Consumer electronics business which includes TVs reported the least sales of all, but still up from Q3 2019.

The South Korean technology giant's tepid outlook may fuel concern that the remarkable tech sector rally during the pandemic may have run its course.

A near 50 percent jump in sales of smartphones likely reflects gains in Samsung's share of the market as US restrictions hit Chinese rival Huawei Technologies Co Ltd, analysts said.

"After the USA restrictions against Huawei took effect in earnest, demand from Chinese customers has increased", said Han Jin-man, senior vice president of memory chip business.

Samsung said its chip profit leapt 82% to 5.54 trillion won from a year earlier, as higher sales of low- and mid-end smartphones and inventory buildup from Huawei ahead of the USA restrictions offset weak demand from servers.

Notwithstanding, Samsung cautioned of lower benefits in the coming quarter because of an expected slump in memory demand and higher competition in the cell phone market. Net profit rose 49 percent to 9.36 trillion won.

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Samsung shipped 15 million television units in the third quarter compared with 10 million for the same quarter a year prior, said S.K. Kim, a Seoul-based analyst with Daiwa Securities.

Sales of Samsung smartphones jumped almost 50% during the September quarter as the rollout of its latest Galaxy Note series and a new foldable device reignited demand for premium handsets that had flagged during the coronavirus pandemic.

"Soft prices in server memory caused by customers' inventory adjustments will likely weigh down the memory business despite stable demand for mobile and laptop memory", Samsung said.

Samsung, the world's largest maker of memory chips and personal electronics, said it was expecting mobile chip demand to remain robust going into the fourth quarter, partly due to the USA restrictions. Samsung will have to increase its ad spending in an increasingly competitive environment. Samsung said that it applied for a permit but has not yet received one. "Annual investment in the foundry business is also expected to increase as the company expands production capacity, including the 5-nanometer extreme ultraviolet [EUV] lithography facility".

For its system LSI business, Samsung vowed to focus on differentiated 5G system-on-chip products and high-resolution sensors.

Samsung's capital expenditures in the third quarter stood at 8.4 trillion won, including 6.6 trillion won spent on semiconductors and 1.5 trillion won on displays.

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