Samsung's Chip Business Sees Record Profits, Mobile Profits Drop as Marketing Spend Increases

Quarterly earnings surged again for Samsung Electronics, thanks to its record-breaking chip business.

The South Korean company said Wednesday that its October-December earnings jumped 74 percent to KRW 12 trillion ($11.2 billion or roughly Rs. 71,300 crores), compared with KRW 6.9 trillion (roughly Rs. 41,000 crores) a year earlier. It was slightly higher than analysts' consensus of KRW 11 trillion (roughly Rs. 65,000 crores), according to financial data provider FactSet.

Sales and operating profit also rose in line with Samsung's earlier guidance. Sales rose 24 percent to KRW 66 trillion ($61.6 billion or roughly Rs. 3.92 lakh crores) and operating profit was up 64 percent to KRW 15 trillion ($14 billion or roughly Rs. 89,000 crores).

Samsung's flagship semiconductor business continued making record-high profits. The division, which supplies chips that help data centers, servers, mobile devices and computers save data and run multiple programs rapidly, generated KRW 10.9 trillion ($10.1 billion or roughly Rs. 64,000 crores) in operating income during the quarter on sales of KRW 21.1 trillion ($19.7 billion or roughly Rs. 1.25 lakh crores), an unusually lucrative record for a manufacturing company.

Other divisions, however, reported lower profit or less impressive profit gains. Profit from its mobile division dropped as Samsung increased marketing spending to promote Galaxy phones, while television and display divisions posted small gains.

Profits have not suffered from the vice chairman's bribery conviction. Samsung heir Lee Jae-yong, a vice chairman and the only son of the ailing chair, is waiting for an appeal ruling next week after receiving a five-year prison term in corruption scandals that led to the removal of the country's president.

Samsung's run of strong profit is not about to stop any time soon. For the current quarter, Samsung said its memory chip division will continue to see strong demand from data centres around the world while its mobile business will see an earnings improvement as the company is due to launch the Galaxy S9 smartphone in spring.

The company dispelled views that the memory chip industry may have passed its peak after impressive growth last year. Samsung's stock price has not recovered its top level in November on concerns that the boom in the memory chip business may not last.

But Samsung gave a bullish outlook on the memory chip industry saying that demand and market conditions will remain stable for flash memory chips while new data centres will continue to drive growth for memory devices call DRAM.

Following earnings reports, Samsung announced a 50:1 stock split that would make its high-priced stocks more accessible and increase the trading volume. It also announced sharply increased dividends to shareholders, spending 50 percent of its free cash flow to pay dividends.