UPDATED 23:13 EDT / JULY 26 2017

INFRA

Samsung earns record profit on surging semiconductor business

South Korean technology giant Samsung Electronics Co. Ltd. reported record quarterly profits on Thursday, blowing past analysts’ expectations on the success of its new Galaxy S8 smartphone and its surging semiconductor business.

The company reported net income of 10.8 trillion won ($9.6 billion) for the second quarter, up 85 percent from a year ago. Analysts were expecting a profit of about 9.75 trillion won, according to a projection by Bloomberg.

Samsung said its operating profit after certain costs such as stock compensation jumped 73 percent from a year ago, to 14.1 trillion won, with sales rising by 20 percent to 61 trillion won.

The company’s share price ticked up 1.3 percent in early trading on Thursday after the results were announced. Samsung customarily announces preliminary results a few weeks earlier.

Samsung’s growth this quarter was largely down to the stunning success of its semiconductor business, which is experiencing an unprecedented boom on the back of strong demand for server memory chips to store, analyze and process data in data centers. That demand, coupled with a tight supply, has seen the price of memory chips shoot up over the last year, bringing an unprecedented level of profitability to suppliers such as Samsung.

Indeed, almost 60 percent of the company’s quarterly income came from its semiconductor business, which recorded 8 trillion won in operating income from sales of 17.6 trillion won.

That performance means Samsung, which is the world’s largest supplier of memory chips, should see semiconductor revenues greater than that of its rival chipmaker Intel Corp., which is due to report Thursday, if analysts’ forecasts are correct. Samsung is also set to outperform Apple Inc. in quarterly earnings for the first time in its history. Apple is forecast to report $8.2 billion in net profits next Tuesday, according to data by FactSet.

Samsung’s display business, which makes high-end OLED display panels for smartphones and TVs, also saw solid earnings of 1.7 trillion won, while its mobile business reported 4.1 trillion won in operating profit, driven by sales of its Galaxy S8 series.

“It was a great quarter for Samsung, fueled by sales of the Galaxy S8 smartphone,” said Holger Mueller, vice president and principal analyst at Constellation Research Inc. He added that the S8’s success puts the  problem of the exploding Note 7 to bed.

“Samsung’s chip business is likely to keep growing well too, as it seems to have cracked the code to become a key part of cloud infrastructure offerings,” Mueller added. “As these [cloud infrastructure] players grow, they will only need more chips and that helps Samsung.”

Despite the unprecedented performance and glowing praise from analysts, Samsung said it expects third-quarter profit to decline because of marketing expenses related to the upcoming launch of its new Galaxy Note handset.

However, Samsung said the outlook for its semiconductor business still looks rosy, as it expects companies to continue adding to their server memory capacity. It said it also expects to see increased orders of memory chips for smartphones with a number of handset manufacturers set to launch new models in the second half of the year.

Image: DennisM2/Flickr

A message from John Furrier, co-founder of SiliconANGLE:

Your vote of support is important to us and it helps us keep the content FREE.

One click below supports our mission to provide free, deep, and relevant content.  

Join our community on YouTube

Join the community that includes more than 15,000 #CubeAlumni experts, including Amazon.com CEO Andy Jassy, Dell Technologies founder and CEO Michael Dell, Intel CEO Pat Gelsinger, and many more luminaries and experts.

“TheCUBE is an important partner to the industry. You guys really are a part of our events and we really appreciate you coming and I know people appreciate the content you create as well” – Andy Jassy

THANK YOU