Samsung Says Component Supply Issues to Affect Chip Demand, Profit Hits 3-Year High

Samsung said on Thursday it expects component shortages to affect chip demand from some customers in the current quarter, after reporting its highest quarterly profit in three years. The warning comes as producers of goods from televisions to cars have faced a host of supply chain issues ranging from a shortage of logic chip parts, manpower shortages, logistics snarls, and delays at parts plants due to power cuts in China.

"A longer-than-expected component supply issue may need to be monitored due to potential impacts" on the manufacturing of devices that use memory chips, Samsung said in a statement, although it added there was "strong fundamental demand for servers from increased investments from technology companies."

The world's top maker of memory chips and smartphones posted a 28 percent jump in operating profit in the July-September quarter to KRW 15.8 trillion (roughly Rs. 1,01,090 crore) on the back of an 82 percent on-year profit surge in its chip business, where earnings rose to KRW 10.1 trillion (roughly Rs. 64,620 crore).

Rising memory chip prices and shipments, plus a jump in profitability at Samsung's chip-contract manufacturing business boosted the chip business' operating profit.

Samsung said demand for server DRAM chips, which temporarily save data, and NAND flash chips that serve the data storage market, is expected to stay robust in the fourth quarter due to expansion of data centre investments, while personal computer manufacturing growth is expected to hold in line with the previous quarter.

Although supply chain issues could limit demand from some mobile chip customers in the fourth quarter, demand for server and personal computer chips is expected to be robust in 2022 despite uncertainties, it said.

Samsung did not comment on the outlook for memory chip prices, which has weighed on the company's shares as investors expect prices to have peaked in the third quarter before falling until mid-2022.

Smaller rival SK Hynix on Tuesday struck a more bullish note than US peers and forecast steady demand for memory chips. Earlier, chipmakers Intel and Micron had said shortages of some components were stopping their customers from shipping PCs.

Operating profit at Samsung's mobile division slid about 24 percent on-year to KRW 3.36 trillion (roughly Rs. 21,495 crore) on the third quarter, as sales of Samsung's new foldable smartphones were tempered by marketing costs.

Despite uncertainties over component supply, year-end holiday shopping is expected to boost demand for mobile devices in the fourth quarter, and Samsung aims to maintain a double-digit profit margin in the mobile business by selling more foldable phones and other premium models as well as wearable accessories.

Net profit rose 31 percent to KRW 12.3 trillion (roughly Rs. 78,700 crore). Revenue rose 10 percent to a record KRW 74 trillion (roughly Rs. 4,73,450 crore).

Samsung's shares rose 0.3 percent in early trade on Thursday, compared with the wider market's 0.1 percent rise. It shares have fallen about 13 percent year-to-date.

© Thomson Reuters 2021