Samsung Electronics expects 52% increase in quarterly operating profit

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SEOUL— Samsung Electronics Co.

expects its fourth quarter operating profit to grow approximately 52% compared to the same period last year, driven by resilient demand for memory chips and improved returns from its manufacturing business. chips under contract.

The world’s largest smartphone and memory chip maker expects operating profit of about 13.8 trillion South Korean won, equivalent to about $ 11.4 billion, for the quarter ended Dec.31. This compares to about 905 trillion won for the quarter of the previous year.

Samsung’s estimated fourth-quarter operating profit was lower than market expectations, but the electronics giant said the drop reflected a one-time bonus paid to employees.

The Suwon, South Korea-based company estimates it generated 76 trillion in sales, a gain of around 24% from a year ago and record quarterly revenue for the company .

Samsung’s increase in revenue reflects the continued strength of chipmakers who have benefited from high demand during a long-lasting supply crisis. The company is seen as an indicator of the tech world, as it is both a major electronics maker and component supplier to major tech companies, including Apple. Inc.

and the Sony group Corp.

Samsung and many other chipmakers have seen their revenues increase as an increase in demand fueled by a pandemic for all kinds of devices requiring semiconductors has created widespread shortages and rising prices.

Analysts polled by S&P Global Market Intelligence on average expected the company to have operating profit of around 15.2 trillion won and revenue of 75 trillion won. Samsung is expected to report full profits later this month.

Samsung shares rose 1.3% on Friday morning in South Korea.

Prices for memory chips (DRAM and NAND flash) are expected to decline over the last three months of last year as the global semiconductor shortage blocks the assembly of various technology products that require memory.

But profits held up, as the price decline was smaller than expected due to strong demand for server memory chips in particular, coupled with the gradual easing of the chip shortage, said CW Chung, manager. of technological research in Asia at Nomura Holdings. Inc.

DRAM prices in the fourth quarter are expected to be down by up to 8% from the previous quarter, while the same NAND flash memory prices are expected to be down by as much as 5%, according to TrendForce, a Taiwan-based market researcher. .

Memory prices are expected to fall further in the first half of this year, although temporary production adjustments at Samsung’s memory manufacturing facilities in Xi’an, China, recently hit by the Covid-19 lockdowns, may help. to mitigate the decline, analysts said.

Samsung’s contract chipmaking business is expected to post an increase in profits in the fourth quarter, as companies were able to charge higher prices due to a capacity gap versus demand, Mr. . Chung.

The chip manufacturing industry is now on a wave of major investments to increase production capacity. Last year, the Samsung Group announced that it would invest more than $ 205 billion over the next three years, with chipmaking a priority. Samsung Electronics announced a $ 17 billion investment in Taylor, Texas in November as it pursues ambitions to develop its chip prowess outside of memory.

Intelligence Corp.

recently pledged to build new chip manufacturing facilities in Europe worth up to $ 95 billion, while Taiwan Semiconductor Manufacturing Co.

said it would spend a record $ 100 billion over the next three years to increase its production capacity.

Meanwhile, Samsung’s smartphone business is expected to have had a relatively strong quarter thanks in part to a strong push from its high-end foldable phone line – the Galaxy Z Fold 3 and Galaxy Z Flip 3. Marketing costs , however, should have weighed on profitability.

Samsung last month said global sales of its foldable devices in 2021 were four times higher than the previous year’s record. He did not disclose the volume of the shipment.

However, component shortages continue to wreak havoc on the telephone industry. The supply of chips such as application processors, power management chips and display drivers remains limited, capping shipments, said Tom Kang, Seoul-based research director at Counterpoint Research.

“The shortage of components is improving, but the supply is still tight. Samsung could have done better this quarter if the semiconductor shortage situation had been relieved earlier, ”said Mr. Kang.

Counterpoint estimates that Samsung shipped around 67 million phones in the fourth quarter, an increase of about 7% from the same period a year earlier. But before the 2019 pandemic, Samsung shipped 70.4 million units in the fourth quarter.

Samsung recently reorganized its leadership and realigned its core businesses, as it seeks to strengthen its leadership in semiconductors and revitalize its smartphone business.

Last month, the South Korean tech giant replaced its three co-CEOs and merged its mobile and consumer electronics units into one. Consolidation should better position Samsung to work more easily across all of its product categories, from mobile devices to other consumer electronics.

Write to Jiyoung Sohn at jiyoung.sohn@wsj.com

Corrections and amplifications
The Samsung Group has said it will invest more than $ 205 billion over the next three years, with chipmaking a priority. An earlier version of this article incorrectly stated that Samsung Electronics would invest more than $ 250 billion. (Corrected January 6.)

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