Samsung Electronics Expects 53% Increase in Operating Profit
Company is lifted by strong demand for memory chips that offset weaker device sales—hurt by component shortages
SEOUL— Samsung Electronics Co. expects a 53% rise in operating profit for the second quarter, lifted by strong demand for memory chips that offset weaker device sales hurt by component shortages.
The world’s largest smartphone and memory-chip maker forecasts operating profit of 12.5 trillion South Korean won, equivalent to about $11 billion, for the quarter ended June 30. Samsung projects revenue of 63 trillion won, up 19% from the prior year.
The South Korean firm’s outlook handily topped market expectations and indicated ongoing strength for tech giants—and especially chip makers, which have seen greater pricing power during a historic supply crunch.
A year ago, during the pandemic’s first months, Samsung saw a double-digit drop in revenue for electronics products such as smartphones and television sets. But demand for components surged as people shifted more of their lives online. Results have remained strong ever since.
Analysts estimates gathered by S&P Global Market Intelligence were about 10.9 trillion won in operating profit and 61.2 trillion won in revenue.
Samsung reports full earnings later this month. The Suwon, South Korea-based company is considered an industry bellwether because it is both a major electronics maker and a components supplier to the world’s biggest tech firms, including Apple Inc. and Sony Group Corp.
Behind Samsung’s earnings are stronger memory-chip prices. Shortages haven’t been as acute for memory chips, which go inside everything from smartphones to laptops to gaming consoles. In recent months, corporate investment into data centers that require large quantities of servers is on the rise, fueling demand for memory chips, industry analysts said.
Demand for computing devices, which include servers, has remained strong, and prices of DRAM and NAND flash memory have in recent months increased by 16% and 5%, respectively, from early this year, said Sanjeev Rana, a senior tech analyst at CLSA, a Seoul-based brokerage. Samsung is the biggest maker of DRAM and NAND chips.
“Memory chips are not in as short supply as automotive chips, but memory- supply dynamics are indeed favorable for pricing right now,” Mr. Rana said.
Samsung has in recent years generated most of its operating profits from chips. In the company’s first quarter, severe weather knocked out production facilities in Texas, causing hundreds of millions of dollars of losses. Those plants have since resumed normal operations, adding to the current quarter’s strength.
Going forward, Samsung is geared to increase investment in its semiconductor division. It has pledged to invest up to $17 billion toward building a new chip plant in the U.S. It has broken ground on a production line in Pyeongtaek, South Korea.
The same forces helping Samsung’s components business have taken a toll on its smartphone unit. A significant reason: a shortage of key chip components.
Samsung is likely to see its smartphone shipments decline by 20% from the previous quarter, said Doh Hyun-woo, an analyst at NH Investment & Securities in Seoul, in a recent note to investors.
Part of that drop is attributable to Covid-19 outbreaks in key growth markets including India, which sapped consumer demand. Some major components suppliers to Samsung’s handset business, such as Qualcomm Inc., have warned of production bottlenecks.
In March, Koh Dong-jin, the company’s mobile chief, warned that chip shortages would hurt its business in the April-to-June quarter. Samsung makes roughly one of every five smartphones shipped globally.
At the start of the year, Samsung’s mobile business was a bright spot, with first-quarter operating profits rising by roughly 65% over the prior year. The results were helped by an earlier release of its Galaxy S21 flagship phone, which made its debut about a month ahead of its usual timetable. Phone rivals such as China’s Huawei Technologies Co. and LG Electronics Inc. have stumbled, handing Samsung bigger opportunities to snap up market share.
In the coming weeks, Samsung is expected to unveil a new foldable smartphone. After introducing the industry’s first mainstream foldable device nearly two years ago, Samsung hasn’t seen blockbuster success, with about two million such devices sold last year, according to Mr. Rana’s estimates.
This year, Samsung could sell between six million and seven million foldable devices, Mr. Rana said.
Samsung Electronics’s shares are down about 2% this year, compared with the roughly 12% gain of the South Korean stock market’s benchmark Kospi index.