Samsung’s Profits Decline Due To Weak Server Chip Demand Despite Strong Earnings In Q3

Weak server chip demand and rising smartphone competition will result in a fall in profit in the fourth quarter, expects Samsung Electronics Co Ltd.  

On Thursday however the company offered its best quarterly operating profit in two years for the third quarter.

A recovery in the mobile and chip markets next year was signalled by the top maker of smartphones and memory chips of the world even though it warned of any further disruption to business because of the novel coronavirus pandemic and the trade tensions between the United States and China in the short-term.

“Global demand is forecast to increase year on year, but uncertainties are unlikely to ease given the possibility of additional waves of the pandemic,” Ben Suh, Samsung’s executive vice president of investor relations, said in an earnings call.

A boost of order from its Chinese customers after the imposition on the Chinese firm Huwaei prompted Samsung to predict a rise in demand in mobile chip in the fourth quarter, Samsung said, but added that large customer inventories could result in weakening of demand for server chips.

“After the U.S. restrictions against Huawei took effect in earnest, demand from Chinese customers has increased,” said Han Jin-man, senior vice president of memory chip business.

Han said that Samsung is still awaiting a license from the US for supplying chips to Huawei.

For the third quarter, Samsung reported its highest quarterly smartphone profit since 2014 at 4.45 trillion won ($4 billion) which helped the company to report a 59 per cent jump in its operating profit in the July-September period to 12.35 trillion won ($11 billion).

With Huawei losing out market share because of the US sanctions on it, the almost 50 per cent  in smartphone sales of Samsung likely reflect the gains in Samsung’s share of the market at the expense of Huawei, said analysts, and added that lower cost of marketing during the pandemic was another factor.

There was an 82 per cent year on year jump in Samsung’s chip profit at 5.54 trillion won as weak demand from servers was offset by higher sales of low- and mid-end smartphones of the company and inventory buildup from Huawei just ahead of the imposing of US restrictions, said the South Korean tech giant.

Analysts said that competition from Apple’s newest iPhone 12 and a lack of new Samsung flagship models will likely result in a drop of about 5 per cent in Samsung’s smartphone shipments in the current quarter.  

“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.

Record earning was also posted by Samsung’s home appliance and TV business as people were forced to stay back home more because of the pandemic and the expansionary policies of various governments such as unemployment benefits.

(Adapted from TheHindu.com)



Categories: Economy & Finance, Strategy, Sustainability, Uncategorized

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