Samsung beats Q4 earnings estimate on recovering chip prices

Samsung Electronics Co. expected market estimate-beating fourth-quarter earnings on Wednesday on a slight recovery in chip prices but suffered its worst performance in four years in 2019 due to a prolonged slump in the chip making sector.

The world's No. 1 memory chipmaker estimated its fourth-quarter operating income at 7.1 trillion won or $6.1 billion, down 34.26 per cent from a year earlier, but the reading was well above the median market estimate of 6.5 trillion won, as chip prices bottomed out and its smartphones drew better-than-expected market response.

The tech giant expected its fourth-quarter sales at 59 trillion won in the three-month period, down 0.5 per cent on-year. The fourth-quarter sales estimate stood at 60.5 trillion won on average, Yonhap news agency reported.

Shares of Samsung Electronics closed at 56,800 won, up 1.79 per cent from the previous session's close, bucking 1.11 per cent decline in the benchmark KOSPI. The earnings guidance was announced before the local stock market opened.

For all of 2019, Samsung predicted its operating profit at 27.71 trillion won, marking a 52.9 per cent on-year drop and the lowest since 2015 when the comparable figure was 26.4 trillion won. Full-year sales are expected to reach 229.52 trillion won, a 5.8 per cent fall from 2018, the tech giant said. It is the lowest level since 2016, when the comparable figure was 201.8 trillion won.

Samsung Electronics did not break down performances of its respective business divisions, saying it will announce the detailed earnings later this month. Samsung, also the world's largest smartphone market, has posted sluggish earnings since late 2018 due to a supply glut of chip products, following a two-year memory chip boom.

Market watchers said a supply glut of DRAM and NAND flash chips, which account for almost half of the firm's sales, dragged down its profitability last year. However, they voiced optimism for an improvement down the road, saying prices have shown signs of recovery, as chip manufacturers move to ease the supply gut and eased trade tensions between the US and China.

Contract prices for 8-gigabyte DRAM server modules, mostly used for PCs, held steady for the last three months of 2019, according to market tracker DRAMeXchange. NAND flash contract market prices posted a 10 percent on-year increase in December, according to the tracker. Industry sources estimated Samsung's chipmaking division's operating income at between 2.9 trillion won and 3.2 trillion won during the fourth quarter of last year.

The Hana Institute of Finance said in its recent report that the fluctuations and downturn in the semiconductor sector were largely due to oversupply and that price drops have recently eased.

"Exports and corporate earnings will still remain weak due to a base effect, but the recovery will start in the second quarter," the report said.

Samsung Electronics is estimated to have bottomed out as quarterly operating profit improved from the 6 trillion-won level in the first and second quarters to a 7 trillion-won level starting in the third quarter. Hi Investment and Securities Co. said a recovery in demand from smartphone makers for its 5G handsets is anticipated to push up Samsung's revenue this year.

"We expect this year's operating income to jump by 53 per cent on-year to reach 41.1 trillion won," said Song Myung-seob, an analyst at Hi Investment & Securities.

The mobile division was also expected to have logged improved results during the fourth quarter on the back of strong sales of its premium smartphones, including the Galaxy Note 10 and the Galaxy Fold, the analysts said. The mobile division is expected to have logged an operating income around 2.5 trillion won in the fourth quarter of last year, sharply up from 1.51 trillion won a quarter earlier

Samsung is estimated to have shipped some 70 million smartphone units for the quarter, slightly down from 85 million units during the same period a year earlier, according to market watchers.

"The mobile division is expected to switch to an upward trend as the premium smartphone market will gain competitiveness with its 5G and foldable smartphones," said Lee Jae-yoon, an analyst at Yuanta Securities Korea Co.

Samsung Electronics' home appliance business might have rebounded thanks to solid sales of its premium TV products, named QLED TVs, coupled with dryers and clothing care home appliances. Samsung earlier said it sold some 5.4 million QLED TVs last year. QLED is the tech company's marketing term for its premium TVs that use quantum dot technology to enhance performance in key picture quality areas.

Its home appliance business unit's operating income for the fourth quarter is put at some between 600 and 700 billion won, according to the sources. However, Samsung's display business unit is believed to have earned an operating income of 500 billion won, nearly halved from a quarter earlier due to falling LCD prices.