Global Economy

Samsung says its second quarter profits likely rose 23%

Samsung Electronics Co. 8GB Double-Data-Rate (DDR) 4 memory modules are arranged for a photograph in Seoul, South Korea, on Tuesday, July 9, 2019.

SeongJoon Cho | Bloomberg | Getty Images

Samsung shares fell Tuesday after the tech giant posted earnings guidance for the three months that ended in June. 

Operating profit likely rose almost 23% to 8.1 trillion Korean won (about $6.8 billion) from a year ago, beating the 6.4 trillion won number that analysts predicted through Refinitiv SmartEstimate. Consolidated sales likely fell over 7% on-year to 52 trillion won, Samsung said. 

The company did not provide a breakdown of how each unit performed in Tuesday’s guidance but flagged a one-off gain in the display business, which counts Apple as a customer.

Shares initially rose more than 1% before erasing gains to trade down 2% as of 1:13 p.m. HK/SIN.

“The last few days Samsung’s been doing quite well as more and more expectations were that the numbers were going to be pretty good,” Mark Newman, managing director and senior analyst at Bernstein, told CNBC’s “Street Signs Asia.”

He explained that when the guidance was released, it turned out a “large reason” for the beat was the one-off gain in the display business — specifically a payment from Apple, which is “making up for them not buying enough displays last year,” Newman said. 

“That’s really a one-time benefit that doesn’t really help the fundamental story so much,” he added. 

Strong third quarter expected 

Samsung’s second-quarter results were “very strong,” driven by the strength in its smartphones and consumer electronics business as well as the expected strength in the memory unit, Sanjeev Rana, a senior analyst at CLSA, said on CNBC’s “Squawk Box Asia.” 

Memory components that are used in data centers and in smartphones make up Samsung’s main profit-making business. 

Rana said he expected another strong quarter for the South Korean tech giant in the three months that end in September, driven by higher overall memory-related earning and a pick up in smartphone shipments in the second half of the year.  Samsung’s display unit is also likely to benefit from supplying parts to Apple for the iPhone 12.

Still, he warned of slight short-term weakness in the memory market. 

“In the second half, we are expecting some mild correction,” Rana said, referring to the average selling prices of memory chips. He explained the correction will be temporary, lasting for two quarters at most. There may also be some weakness on the demand side in the near term, but Rana said he expects a recovery in 2021. 

Bernstein’s Newman added that the memory business has powered a lot of the recovery over the last few quarters for Samsung’s profits.

But some data points, which are considered to be leading indicators for memory prices, have started to fall in the last month or so, he said. Newman added the reason behind the decline is a worry that data centers and cloud computing service providers may not spend as much buying new servers and memory chips for those servers in the second half of 2020. 

“It’s well known among most investors right now, but I think that is where some of the second-half fears are coming from,” he added. 

Analysts have previously said that memory chip demand was boosted by the coronavirus pandemic, which forced millions to work from home and make their purchases online.

Full earnings numbers from Samsung are due later this month. 


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