(Bloomberg) – Samsung Electronics Co. beat earnings estimates and offered a cautiously optimistic outlook, predicting that new smartphones and game consoles will increase demand for memory chips in the second half of the year.
Net income rose to 5.5 trillion won ($ 4.6 trillion) in the three months ending June, the company said in a presentation Thursday, compared to the average of 4.9 trillion won in estimates compiled by Bloomberg. The South Korean company had reported preliminary figures earlier this month showing that operating profit increased 23%.
Samsung, which is the world’s largest smartphone maker and also supplies components like memory chips, is navigating the tumult of the coronavirus pandemic, along with the rest of the tech industry. The company warned of a drop in its consumer business in the second quarter. But sales of smartphones, televisions and other devices have started to pick up, and the company said demand is likely to get a boost from the introduction of new game consoles and phone models, expected by Apple Inc. and Samsung.
“Covid-19 continues to cloud the demand landscape, but structurally speaking, the demand is there,” said Bloomberg Intelligence analyst Anthea Lai. “We are getting there to have more 5G smartphones from Samsung and the expectation in the second half is to have more consumer demand.”
Samsung shares rose as much as 1.9% in Seoul trade, bringing earnings this week to around 10%. The company said it would not provide annual financial guidance due to the uncertainty of the coronavirus.
Although it’s best known abroad for its phones, Samsung makes most of its profits from memory chips, used in everything from phones and consoles to servers that help deliver online services like video and music. Samsung said it anticipates that the overall DRAM market will be on the rise.
“Looking into the second half, we expect overall mobile demand to pick up and demand for graphics to increase as well,” said Jinman Han, senior vice president of semiconductor business. “For servers, the demand for memory driven by household activities seems to continue as Covid-19 and other uncertainties persist.”
The company’s own mobile devices, which will be updated with the flagship launches Galaxy Note and Galaxy Z Fold, are expected to improve revenue quarterly, but the company stressed that uncertainties related to Covid-19 will continue.
“We also believe that customers may have increased their inventories during H1, so another variable for the second half of demand is the direction of our customers’ inventory management,” said Han.
Samsung shares rose earlier in the week due to news of the delay in the production of 7nm chips from Intel Corp. and it is likely that they will need to outsource some of the chip manufacturing in the future to companies like Taiwan Semiconductor Manufacturing Co Samsung is one of the few companies equipped to handle advanced semiconductor manufacturing, and Intel’s potential for more business fueled market sentiment.
What Bloomberg’s Intelligence Says
Samsung’s foundry business could benefit from Intel’s chip manufacturing recall as industry leader TSMC may have a tight production schedule to meet demand from the American company. Samsung is already a provider of Intel CPUs based on the 14-nanometer process.
– Anthea Lai, analyst
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In addition to the impact of Covid-19, geopolitical issues are likely to also reposition the global supply chain in a way that affects Samsung’s business. The ban on Huawei Technologies Co. in the US and the UK opens up more opportunities for Samsung to sell 5G networking equipment and smartphones.
The mobile division of the world’s largest smartphone maker saw a 25% increase in operating revenue to 1.95 trillion won. The Korean giant expects smartphone sales to increase in the third quarter with the launch of new Android devices, including its line of folding phones, but warned of intensifying market competition among smartphone manufacturers who will strive for compensating for poor results during the pandemic.
Read more: Samsung presents new mobile gadgets for a generation that stays at home
“There is a possibility that the Galaxy Fold 2 could become a game changer in the smartphone ecosystem,” said Greg Roh, senior vice president at HMC Securities. “Most of the shortcomings found in the previous model have been overcome with the ultra-thin glass and a larger screen.”
Samsung’s display division, which supplies organic light-emitting diode displays for Apple iPhones, posted an operating profit of 300 billion won. Although the display business suffered as the smartphone market plummeted due to the virus, the loss was offset by Apple’s refund. Analysts have said the payment amount was approximately 1.1 trillion won.
The consumer electronics unit, which includes televisions and appliances, posted earnings of 730 billion won. Samsung expects a recovery in televisions and digital devices in the second half of this year thanks to pent-up demand after virus crashes and vacation expenses.
(Updates with details of the third paragraph earnings call)
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