UPDATED 01:22 EDT / JULY 07 2020

APPS

Samsung expects second-quarter profits to grow 22% on chip demand

Samsung Electronics Co. Ltd. saw its stock price waver early today despite issuing strong second-quarter preliminary earnings guidance that comfortably beat analysts’ forecasts.

The company said later Mondday that its operating profit is expected to rise by almost 23% to 8.1 trillion won (about $6.8 billion) compared with the same period a year ago. That’s well ahead of the 6.4 trillion won operating profit forecast by analysts. Samsung also said its consolidated sales likely fell by around 7% year-over-year, to 53 trillion won, over the same period.

Samsung’s stock initially rose more than 1% following the publishing of its earnings guidance, but was trading down 1.6% at the time of writing.

The South Korean company did not provide a breakdown of its individual business units at this time. However, it’s semiconductor business, which accounts for the bulk of Samsung’s profits, is likely to have benefited from increased demand for memory chips used in personal computers, mobile devices and servers during the quarter, similar to what happened during the first quarter of this year, analysts told CNBC.

Prices for Dynamic Random-Access Memory or DRAM chips have been steadily increasing throughout 2020, thanks in part to stronger demand for PCs and servers as more people work from home during the coronavirus pandemic.

Analysts said Samsung’s mobile and consumer electronics businesses are also likely to have done better than expected after many retail stores in Europe and the U.S. have partially reopened as lockdown measures are eased.

In addition, Samsung flagged a onetime gain for its display business, as its major client Apple Inc. reportedly paid a penalty because of lower-than-expected sales of its flagship iPhone. Samsung received a similar onetime penalty payment from Apple in the second quarter of 2019 after its client failed to buy the minimum number of display panels it was contracted to do.

Sanjeev Rana, a senior analyst at CLSA, told CNBC that Samsung’s second-quarter results were “very strong” and that he expects a similar performance in the next three-month period as smartphone shipments will likely pick up in the second half of the year.

Holger Mueller, an analyst with Constellation Research Inc., told SiliconANGLE that Samsung once again had shown better-than-expected results, demonstrating the resilience of the memory chip market.

“While the traditional smartphone segment was affected by Covid-19, the memory chip business was not,” Mueller said. “Samsung did a great job selling additional electronics to work from home workforces around the globe, most notably in its monitor business. Good to see guidance remaining in the same range, but in these uncertain times, investors need to take it a quarter at the time.”

Samsung is due to post its full second-quarter results later this month.

Photo: Techstage/Flickr

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