Samsung warns of weaker outlook even as profit beats | Tech News

Samsung warns of weaker outlook even as profit beats

Samsung Electronics Co. warned earnings in the current quarter will decline, saying the strong growth in its mobile and memory business that helped third-quarter profit beat will ease amid intensifying competition and weakening demand.

By:BLOOMBERG
| Updated on: Aug 20 2022, 23:40 IST
Samsung Electronics Q3 net profit leaps
Samsung Electronics Q3 net profit leaps (REUTERS)

The world's largest maker memory chips and personal electronics said net income rose a better-than-expected 52% to 9.27 trillion won ($8.2 billion) in the three months ended September, beating the 7.54 trillion won average of estimates. Samsung foresees capital spending of about 35.2 trillion won this year because of a migration to more advanced chip processes and a buildout of its contract chipmaking business.

The South Korean giant is seeking to regain the lead as the world's largest smartphone maker after losing the crown earlier this year to Huawei. It introduced new mobile devices during the quarter, benefiting from the gradual reopening of economies worldwide and delays to handset launches by rivals including Apple Inc. The U.S. restrictions on Huawei also prompted rush orders from the Chinese telecoms titan ahead of the Sept. 15 deadline, benefiting Samsung's memory division.

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Looking ahead, Samsung Electronics expects profit to decline in the fourth quarter amid weakening memory chip demand from server customers and intensifying competition in mobile phones and consumer electronics.

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“The mobile communications business is likely to see smartphone sales decline and marketing costs increase due to competitive market environment. In consumer electronics, profitability is expected to weaken on growing competition and rising costs, despite solid demand,” Samsung said in the earnings release. “For 2021, the company expects a recovery in overall global demand but uncertainties will remain over the possibility of recurring epidemic waves of COVID-19.”

What Bloomberg Intelligence Says

Samsung Electronics may continue to deliver stronger-than-expected earnings, in our view, on a rebound in smartphone shipments. Huawei's declining appeal among overseas consumers and a delay in this year's new Apple iPhone release could aid Samsung's market share gain, as reflected in its 3Q preliminary profit beat. However, Samsung's memory chip profit looks set to drop from 3Q's surprise increase.

--Anthea Lai, analyst

Samsung shares have surged nearly 40% from their March lows. The stock slipped 1.2% on Thursday after the earnings report.

Sales of smartphones jumped nearly 50% during the September quarter as the rollout of its latest Galaxy Note series and a new foldable device reignited demand of premium handsets that had flagged during the coronavirus pandemic. Handset shipments may have climbed to as many as 79 million units during the period, Samsung Securities estimated before the earnings announcement.

Overall demand for memory exceeded expectations in the third quarter, boosted by Huawei and other mobile customers. While mobile demand may continue to remain strong in the fourth quarter and into the first half, server orders are likely to be weak with the prolonged pandemic prompting clients to slow orders, Samsung said.

Server memory prices are already correcting. Contract prices for 32-gigabyte DRAM server modules fell 9% in the September quarter, according to InSpectrum Tech Inc. Prices for 128-gigabit MLC NAND flash memory chips decreased about 8% in the third quarter. Rival Micron Technology Inc. cut capital spending plans last month, warning about weaker demand from some corporate customers and forecast possible oversupply of flash memory chips next year.

The death of Samsung Group Chairman Lee Kun-hee over the weekend may add to further uncertainty. While his son Jay Y. Lee is expected to take over as chairman of the group, the younger Lee still faces two trials over allegations he used bribery and accounting trickery to smooth his path to succession. The family will also have to pay billions of dollars in inheritance tax, and Samsung has so far declined to comment on how they will fund the payments.

By Sohee Kim

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First Published Date: 29 Oct, 07:36 IST
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