Samsung Electronics Co. today reported a lower-than-expected rise in its fiscal second-quarter operating profit, with reduced smartphone sales dragging down its bottom line despite strong demand for its server chips.

In its preliminary earnings guidance for the second quarter, the company estimated its operating profit at 14 trillion won ($11 billion), up 11% from a year earlier but just below the analyst consensus of 14.5 trillion won.

Despite the miss, Samsung said it was its best second-quarter earnings performance in four years. The company projected total sales in the quarter of 77 trillion won, up 21% from a year ago and just above the consensus estimate of 76.7 trillion won.

Samsung, which is the world’s largest manufacturer of both memory chips and smartphones, did not offer a detailed breakdown of its respective business units, with its full earnings report set to come later this month.

However, it’s known that Samsung continued to see strong demand for its memory chips in the quarter. The company manufactures both dynamic random-access memory, which is used in personal computers and servers, and NAND flash memory chips for smaller devices such as smartphones and USB drives. During the quarter, global shipments of DRAM rose by 9%, while NAND shipments increased 2%, Yonhap reported.

Dragging on Samsung’’s profits, however, were inflation-hit smartphone sales. Yonhap said a drop in consumer spending has resulted in lower sales of smartphones and other products, such as TVs. As a result, Samsung’s income took a big hit.

Analysts estimate Samsung’s smartphone shipments at 61 million units, down 16% from the previous quarter. As such, the business unit’s operating profit is likely to fall to 2.6 trillion won, down from 3.2 trillion won one year ago.

Analyst Holger Mueller of Constellation Research Inc. remarked that in an environment that’s marked by a lingering pandemic, war and fears of a recession, it’s something of a positive when the world’s largest memory chip and smartphone maker has to pre-warn investors that it’s second quarter will be its best in four years.

“It’s good to see the mixed technology approach working for Samsung, with chips being the growth engine, and TVs and smartphones the laggards,” Mueller added. “Now all eyes are on the final results by end of the month and how Samsung will do in the second half of the year.”

It may not do quite as well. Samsung is bracing itself for further sales declines later in the year, with the ongoing war in Ukraine, increased inflation and ongoing COVID-19-related lockdowns in China battering the global economy and reducing consumer spending. In light of these problems, Gartner Inc. recently forecast a 7.6% decline in shipments of consumer electronic devices such as smartphones and PCs.

Fears are rising that the negative outlook could have a knock-on effect in the semiconductor industry, leading to weaker demand as consumer electronics brands struggle to shift their existing inventories. One of Samsung’s biggest rivals in the memory chip market, Micron Technology Inc., last week warned investors that it expects its fiscal fourth-quarter earnings and revenue to fall some way short of expectations.

Photo: Samsung