Samsung Electronics' Q2 Profit Likely Rose 11 Percent on Solid Server Chip Demand

South Korea's Samsung turned in its best April-June profit since 2018 on Thursday, underpinned by strong sales of memory chips to server customers even as demand from inflation-hit smartphone makers cools.

Shares of the world's largest memory-chip and smartphone maker rose 2.5 percent after preliminary results for the second quarter were announced, versus a 1.5 percent rise in the wider market.

Samsung posted an operating profit of KRW 14 trillion (roughly Rs. 85,135 crore), up 11 percent from KRW 12.57 trillion (roughly Rs. 76,430 crore) a year earlier, just shy of a KRW 14.45 trillion (roughly Rs. 87,870 crore) SmartEstimate from Refinitiv. Revenue rose 21 percent to KRW 77 trillion (roughly Rs. 4,67,900 crore), in line with estimates.

The strong quarter for Samsung comes at a time when other chipmakers have warned of a looming chip glut at customers who stocked up during the pandemic to meet higher demand from people working from home.

Chipmakers including Micron and Advanced Micro Devices have also recently signalled waning demand as red-hot inflation squeezes spending.

"Memory chipmakers are expected to build inventory and hike shipments when prices rebound and demand recovers next year", said Park Sung-soon, an analyst at Cape Investment & Securities.

Prices of specific DRAM chips, used in devices and servers, fell about 12 percent last month from a year ago, according to data provider TrendForce. Prices of NAND Flash chips, used for data storage, are also projected to fall as much as 5 percent in the July-September period from the previous quarter.

Smartphone demand weakens

Rising inflation, concerns about a downturn in major markets, the war in Ukraine and China's COVID-19 lockdowns have resulted in slowing smartphone sales, leaving server chip demand as the only bright spot, analysts said.

Samsung's profits have been shielded as large US tech firms such as Amazon, Microsoft, Alphabet's Google, and Meta that use a lot of data centre services kept buying chips to meet cloud demand, they added.

Making a case for strong server demand, Taiwanese contract electronics supplier and Apple iPhone maker Foxconn on Monday raised its full-year outlook and said it was optimistic about the third quarter.

A strong dollar, which hit a 20-year high, may have also aided Samsung's chip profits in the second quarter.

Samsung's chip sales are made mainly in dollars, while it reports its profit in Korean won, so a firm greenback translates to higher chip earnings.

Estimated smartphone shipments by Samsung's mobile business in the second quarter were about 62-64 million, about 5 percent - 8 percent lower than a March estimate, Counterpoint Research said, as inflation hit smartphone demand.

Samsung shipped 74 million smartphones in the first quarter.

"This trend is the same for major global smartphone makers, although there is variance to some degree ... In particular, the hit to the demand for low- and mid-end smartphones seems more severe," said Jene Park, Senior analyst at Counterpoint.

© Thomson Reuters 2022