Samsung's second-quarter chip sales unlikely made up for smartphone weakness

At Samsung Electronics Co Ltd, demand for its chips from data centres bulking up to meet a surge in work-from-home traffic was not likely enough to offset muted sales of its smartphones in the second quarter, analysts said.

Chips bring in roughly half of Samsung's profit. The rest is mainly smartphones, of which the South Korean firm is the world's largest maker. (REUTERS)

The world's biggest supplier of DRAM and NAND memory chips on Tuesday will announce preliminary April-June revenue as well as operating profit, which it previously expected to show a decline.

Profit likely fell 4.5% to 6.3 trillion won ($5.25 billion) from the same period year earlier, according to Refinitiv SmartEstimate, which is weighted towards the more consistently accurate analysts.

Work-from-home orders and growth in online learning is underpinning chip demand amid the COVID-19 pandemic, prompting U.S. DRAM supplier Micron Technology Inc to forecast strong quarterly revenue last month.

Chips bring in roughly half of Samsung's profit. The rest is mainly smartphones, of which the South Korean firm is the world's largest maker.

"With improved demand, a spike in DRAM prices helped Samsung continue with a solid performance in the second quarter," said analyst Park Sung-soon at Cape Investment & Securities.

Those price increases were likely driven by data centres stockpiling chips and so are unlikely to continue, analysts said. Though DRAM prices jumped 14% in the quarter, they were flat in June versus May, showed data from DRAMeXchange.

"Until uncertainty stemming from the pandemic goes away, the sector's outlook isn't too positive," said CW Chung, Nomura head of research in Korea.

In smartphones, Hyundai Motor Securities estimated Samsung's operating profit fell 16% in April-June.

Gadget sales have fallen along with discretionary spending during the pandemic. Samsung's smartphone shipments hit a low in April and is likely to take time to recover, analysts said.

Samsung's display business - whose customers include Apple Inc and Huawei Technologies Co Ltd - is likely to post a second consecutive quarter of loss, analysts said.

The firm will likely release detailed earnings figures later this month.