As Chip Surge Eases Smartphone Recall Blues, Samsung Sees Third Quarter Profit Jump

As a pickup in chip and display earnings likely offset the impact of a global smartphone recall that has roiled the tech giant, South Korea’s Samsung Electronics Co expects third-quarter profit grew 5.6 percent, beating estimates.

Compared with the 7.4 trillion won tipped by a Thomson Reuters StarMine SmartEstimate of analysts’ forecasts, Samsung’s operating profit for July-September was likely 7.8 trillion won ($7 billion), the world’s biggest smartphone maker said in a brief filing on Friday. A year earlier operating profit was 7.4 trillion won.

The firm gave no details on the cost of recalling about 2.5 million Galaxy Note 7 phones after batteries caught fire and won’t issue full results until late October. Mobile earnings could be undercut by at least 1 trillion won by the Note 7 woes – rumbling on with Wednesday reports of a smoking battery in a replacement device, analysts have said.

“Obviously the Note 7 recall costs were reflected but (business) segments such as memory and OLED (organic light-emitting diode) displays did well and will probably continue to do so until at least next year,” said IBK Asset Management fund manager Kim Hyun-su.

As Apple Inc and peers boost the global market, seeking chips for new iPhones and other products launched ahead of the peak year-end sales season, Samsung’s semiconductor business – the world’s top memory chip maker – is thriving. Its revenue beat expectations, said Germany’s Dialog Semiconductor Plc, an iPhone chip supplier, on Thursday.

Ironically, Samsung’s chip business could also get a boost from the Note 7 problems. The prices of chip could be pushed higher as the already tight memory market conditions is being exacerbated by the sudden need for chips in 2.5 million replacement phones, industry executives say.

The firm’s clients, which include Samsung, are currently having a harder time procuring memory chips, said Paul Romano, chief operating officer at U.S.-based electronic component distributor Fusion Worldwide. Romano said that as smartphone makers see an opportunity capitalize on Samsung’s mis-steps and boost handset sales, they are also trying to secure more of the chips.

“Sometimes this creates a seize mentality – everyone tries to manage the risk. Often the response is to procure new product, trying to grab what’s left of a shrinking pile of supply,” said Romano.

There will be a rise by more than 10 percent in October-December in prices for DRAM chips – used in temporary data usage, says Researcher TrendForce. The researcher added, tipping prices to continue rising, that demand is outpacing supply in the market for NAND chips used for long-term data storage during the third quarter.

Samsung shares were up 0.5 percent at 1.7 million won at 0220 GMT, compared with 0.3 percent fall for the broader market. .

Recently, activist investor Elliott Management has been pushing Samsung for a radical corporate makeover that would split Samsung Electronics into a holding vehicle for ownership purposes and a separate operating company. And after Samsung said it was “carefully reviewing” the proposals by activist investor, the stock touched a record high of 1.716 million won on Thursday.

Samsung didn’t comment on Friday on how it plans to respond to the Elliott proposals.

(Adapted from Reuters)

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Categories: Economy & Finance

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