Samsung Sees Profit Decline on Weak Server Chip Demand

Samsung said on Thursday it expects fourth-quarter profit to fall due to weak server chip demand and rising smartphone competition, after posting its best quarterly operating profit in two years in the third quarter.

The world's top maker of smartphones and memory chips posted a 59 percent jump in operating profit in the July-September quarter, on the back of its highest quarterly smartphone profit since 2014 at KRW 4.45 trillion (roughly Rs. 29,102 crores).

A near 50 percent jump in sales of smartphones likely reflects gains in Samsung's share of the market as US restrictions hit Chinese rival Huawei, analysts said.

Lower marketing costs amid the coronavirus pandemic were also a likely factor, analysts said.

Samsung said its chip profit surged 82 percent to KRW 5.54 trillion (roughly Rs. 36,229 crores) from a year earlier, as higher sales of low- and mid-end smartphones and inventory buildup from Huawei ahead of the US restrictions offset weak demand from servers.

Samsung's display business, which counts Apple among its customers, said its operating profit fell from a year earlier because of delays of new model launches by a major customer.

Operating profit in the third quarter was KRW 12.35 trillion (roughly Rs. 80,761 crores) from KRW 7.78 trillion (roughly Rs. 50,876 crores) a year earlier, in line with the company's estimate earlier this month.

Revenue climbed 8 percent to KRW 66.96 trillion (roughly Rs. 4,37,842 crores). Net profit rose 49 percent to KRW 9.36 trillion (roughly Rs. 61,203 crores).

"Soft prices in server memory due to customers' inventory adjustments will likely weigh down the Memory Business despite stable demand for mobile and laptop memory," Samsung said in a statement.

Samsung's smartphone shipments in the current quarter are expected to drop about 5 percent compared to the previous period due to competition from Apple's newest iPhone 12 and a lack of new Samsung flagship models, analysts said.

"With Huawei's presence becoming fainter in the smartphone market, Samsung's marketing costs are expected to be higher in the current quarter as Apple, Vivo, Xiaomi and Samsung try to take over Huawei's market share," said Park Sung-soon, an analyst at Cape Investment & Securities.

Samsung's display earnings would benefit from robust demand for Apple's first 5G iPhones, he added.

Samsung's shares fell 1.4 percent in early trade on Thursday, compared to the wider market's 1.3 percent fall.

© Thomson Reuters 2020

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