Solid Chip Sales Unlikely to Cushion Samsung's Virus-Hit Q1 Profit

The coronavirus-driven global shift to working from home is set to have boosted demand for Samsung Electronics' memory chips from laptop makers and data centres, but first-quarter profits are likely to remain flat as the outbreak weakened consumer electronics sales. The South Korean tech giant is the world's largest memory chip maker, and its Galaxy smartphones are a major rival of Apple Inc's products.

Samsung, which also makes home appliances and displays, on Tuesday releases guidance for the January-March quarter profit which is widely expected to be unchanged, and come under pressure in the next few quarters as the impact of coronavirus-related factory and retail stores shutdowns bites.

"The visibility for Samsung's earnings is low for the second quarter," said Lee Do-hoon, an analyst at CIMB Research.

For the quarter which just ended, Samsung is likely to estimate its operating profit at KRW 6.2 trillion ($5.05 billion), unchanged from the same period a year ago, according to Refinitiv SmartEstimate, weighted towards more consistently accurate analysts.

However, the company already warned last month that the pandemic would hurt sales of smartphones and consumer electronics goods this year, and analysts said a prolonged virus outbreak could put higher demand for memory chips at risk.

"If COVID-19 continues into 2H20, the memory market outlook could change for the worse," CW Chung, head of research at Nomura in Korea, said in a recent report.

When the outbreak first started in China last year, Samsung's strategy of spreading out its production base to countries including Vietnam and India seemed to pay off: rivals such as Apple were hit by supply disruptions as China shut down factories and locked down cities to control the coronavirus.

Apple rescinded its profit forecast earlier this year due to production halts and retail store shutdowns in China.

But as the virus spread across the globe, Samsung too has had to close factories and retail stores in Europe, India and the United States, further unnerving investors: Samsung Electronics shares have slumped 15 percent so far this year, but outperformed the wider market's 22 percent fall.

Prospects for Samsung's flagship Galaxy S20 premium smartphones, launched more than one month ago, look dim. Its 5G-enabled S20 phones are already selling at a third of their launch price of $1,308 in South Korea, an official at a local carrier told Reuters.

Brokerage Hanwha Investment & Securities estimates Samsung smartphone sales fell 17 percent in the first quarter from a year earlier. Last year, a slump in profits at the smartphone and chip businesses more than halved Samsung's full-year earnings.

Its display business, which counts Apple and China's Huawei Technologies as customers, is likely to have swung back to a loss after three consecutive quarterly profit due to sluggish demand from its clients, analysts said.

Samsung only provides its estimates for its first-quarter revenue and operating profit on Tuesday, with details likely to be released later this month.

© Thomson Reuters 2020