Samsung bearish on profits due to weak demand for chips despite robust Q3 performance
The world’s leading smartphone and memory chip manufacturer Samsung Electronics announced on Thursday that it was expecting a fall in Q4 profits due to weak demand for server chips and growing competition in the smartphone industry. The announcement came after it posted the company’s best quarterly figures in over 2 years.
The electronics giant recorded a 59% increase in operating profits for the July-Sept financial quarter at around $4 billion. It also recorded its highest profits on smartphone sales since 2014.
With its smartphone sales jumping ahead by nearly 50%, analysts said that Samsung’s expansion in market share was due to the impact of US restrictions on its Chinese rival electronics manufacturer Huawei Technologies.
The COVID-19 pandemic also led to a fall in marketing costs, thus increasing Samsung’s profits. Samsung announced that its server chip profit had increased 82% to ₩5.54 trillion compared to last year, thanks to a boost in sales of mid- and low-end smartphones. US restrictions placed on Huawei by the Trump administration have helped Samsung expand its market share and offset the fall in server chip demand.
On the other hand, Samsung’s smartphone display division, which counts Apple in its customer base, announced that its operating profits had fallen this year due to smartphone launch delays made by one of its major customers.
Q3 operating profits were recorded at ₩12.35 trillion, compared to ₩7.78 trillion in 2019. This was not far off from the company’s official estimates that were announced in early November.
Revenues have grown 8% to hit ₩66.96 trillion. Additionally, net profits increased 49% to hit ₩9.36 trillion as well.
Samsung stated that server memory prices were falling due to the changing inventory adjustments of its customers, which has depressed its Memory Business division despite recording strong demand for laptop and mobile memory.
Analysts cautioned that Samsung’s Q4 smartphone sales could drop 5% this quarter due to intense competition from the iPhone 12. Samsung hasn’t launched any flagship models recently either, due to which analysts are predicting a dip in smartphone profits.
Park Sung-soon of Cape Investment & Securities stated that with Huawei’s presence diminishing in the electronics and smartphone industry, Samsung’s marketing budget might be hiked significantly to compete with Xiaomi, Vivo, and Apple, which are also trying to capture Huawei’s existing customer base.
However, Samsung’s smartphone display sales would experience a tremendous jump in the next quarter due to strong demand for 5G iPhones from Apple, he added.
Thursday saw Samsung’s shares fall by 1.4% during early trading hours with the wider market seeing a 1.3% fall in the company’s valuation.Source