Samsung Elec sees strong chip demand, mobile recovery as Q2 profit jumps

SEOUL, July 29 (Reuters) – Samsung Electronics Co Ltd (005930.KS) on Thursday forecast strong demand for memory chips in the second half and a recovery in the mobile market to 2019 levels, in a sign the global economy is getting back on track from the coronavirus pandemic.

The world’s top maker of memory chips and smartphones posted a 54% jump in operating profit for the second quarter, its strongest result in more than two years, supported by high chip prices and better than expected demand.

“For the second half, market conditions are expected to be favourable for the component business,” Samsung said in a statement. “Memory demand will likely be buoyed by new smartphone model launches, with wider 5G availability driving growth.”

The company cautioned that a global shortage of non-memory chips still poses a risk to forecasts, while uncertainties related to COVID-19 and geopolitical tensions are likely to persist.

A worldwide shortage of semiconductors other than memory chips is becoming a key issue for smartphone makers as they prepare to launch new products in the second half of the year.

Mobile rival Apple Inc (AAPL.O) said on Tuesday it expected the impact of the chip shortage to worsen in the fourth quarter and extend to iPhone production.

Still, Samsung pointed to strong fundamentals for the memory chip market on increasing 5G adoption and sustained demand for servers and PCs. It noted its chip inventory is “very low” after it shipped more chips than previously expected in the second quarter.

Samsung plans to unveil its next flagship foldable smartphone on Aug. 11, expected to be compatible with a stylus.

“Samsung will see solid third quarter results as DRAM prices spike further and display sales rise on new smartphone launches including from Apple. The unknown variable is smartphone sales,” said Park Sung-soon, analyst at Cape Investment & Securities.

The logo of Samsung Electronics is seen at its headquarters in Seoul, South Korea, April 4, 2016. REUTERS/Kim Hong-Ji/File Photo

“Samsung is expected to lower the price of its foldables, making them more accessible to consumers.”

RECORD FOUNDRY SALES

Companies from cars to smartphone makers are grappling with the unprecedented shortage of chips, sparked by a recovery in consumer demand, limited manufacturing capacity and production disruptions from new coronavirus outbreaks.

Samsung’s chip contract manufacturing business, which makes these chips, posted record revenue in the second quarter, it said.

Samsung’s operating profit in the April-June quarter of 12.6 trillion won ($10.95 billion) was the company’s best result since the third quarter of 2018.

Mobile profits dipped from the previous quarter due to constrained supply of mobile processor chips and pandemic-related production disruptions.

The company said it shipped 60 million handsets in the second quarter, down from 81 million in the first. Production at Samsung’s Vietnam smartphone plant was affected by COVID-19 lockdowns, but was expected to normalise over July, it said.

Samsung reiterated it is looking to conduct a sizable M&A within three years, echoing comments made in January. It is considering candidates in areas including AI, 5G, and vehicle components, it said in an earnings call.

Samsung’s shares fell 0.3% on Thursday afternoon, compared with a 0.2% rise in the wider market (.KS11).

($1 = 1,150.2300 won)Reporting by Joyce Lee and Heekyong Yang; Editing by Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

Source: https://www.reuters.com/technology/samsung-elec-q2-operating-profit-rises-54-strong-chip-prices-2021-07-28/