Samsung Flags Mobile Weakness as Chips Power Record Q1 Profit

Samsung Electronics said weakness in the global smartphone market would slow earnings growth, as it reported record quarterly profit on Thursday thanks to strong demand for semiconductors used in servers.

The world's biggest maker of memory chips, smartphones and television sets also flagged softer demand for smartphone OLED panels as a challenge for the second quarter, while its cash-cow chip business should remain strong.

"Generating overall earnings growth across the company will be a challenge due to weakness in the display panel segment and a decline in profitability in the mobile business amid rising competition in the high-end segment," Samsung said in a statement. In the display panel segment, which manufactures OLED and LCD screens, profits were affected by slow demand for flexible OLED panels and greater competition between rigid OLED and LTPS LCD.

Samsung Electronics shares were up 3 percent as of 0040 GMT, while the KOSPI benchmark share price index was 0.9 percent higher, as investors shrugged off concerns about the smartphone market and seized on the positive outlook for memory chips.

"Shares are rising as Samsung Electronics' outlook for its memory chip business appears more positive than we've heard from other companies," said Greg Roh, analyst at HMC Investment & Securities.

South Korean rival SK Hynix and Taiwan Semiconductor Manufacturing Co (TSMC) separately warned this month of slower growth in smartphone chip sales. TSMC, a key supplier for Apple's iPhones, cut its revenue target last week.

But Samsung Electronics, a rival and supplier to Apple, forecast continuing strong sales not only of server DRAMs but mobile DRAMs as well.

Demand for NAND chips used in mobile devices was also expected to be strong, it added, referring to the "high-density trend" for more powerful chips in the latest gadgets.

Samsung Electronics said operating profit was KRW 15.6 trillion ($14.4 billion) in the first quarter, up 58 percent from a year ago and in line with the KRW 15.6 trillion the company had estimated. Revenue jumped 19.8 percent to KRW 60.6 trillion, also in line with its estimate.

The chip business was Samsung's top earner again as it booked a record KRW 11.6 trillion operating profit in January-March, from KRW 10.9 trillion in the previous quarter, despite signs the recent boom in memory chips was tapering off.

The mobile business booked KRW 3.8 trillion in quarterly profit, up 82 percent from a year ago.

Samsung has shipped about 10 million units of its flagship Galaxy S9 smartphone since sales began in mid-March, in what analysts said was a solid showing. Strong sales of the Galaxy S8 smartphone from last year despite the early release of its flagship Galaxy S9 smartphone showed that consumers are not enthusiastic about upgrading their phones to the latest products.

According to market research firm GfK, global smartphone demand fell two percent to 347 million units in the first quarter of 2018. Demand was especially sluggish in China and North America, it said.

However, the average sales price grew 21 percent year-on-year in the quarter, leading to an 18 percent rise in global smartphone revenue year-on-year to $129.8 billion.

© Thomson Reuters 2018