Samsung projects a quarterly profit to reach three years on chip peak

Samsung Electronics estimated its second-quarter operating profit to jump 53 percent to its highest level in three years on rising chip prices as electronics demand widened a global semiconductor shortage .

The world’s largest maker of memory chips, smartphones and electronic screens projected Wednesday that the operation’s profit hit Won12.5tn ($ 11bn) between April and June, compared to Won8.2tn a year earlier. Analysts interviewed by Refinitiv had predicted an operating profit that would grow to Won11.3tn. Samsung sales were estimated to have grown 18.9% for Won63tn.

Strong gains have highlighted the growing demand for chips, which has depleted inventories and caused supply shortages in all industries from automotive to consumer electronics. Analysts were expecting chip prices to continue to grow in the second half on tight supply.

“Earnings are likely to grow in the third quarter when Dram and Nand prices are likely to grow more than 10 percent,” said CW Chung, head of research at Nomura in Seoul. “The industry is just getting into a supercycle that is likely to continue throughout the next year.”

Samsung has been around for decades dominated production of Dram and Nand chips. The first allows short-term storage for graphics chips, mobile and server, while the second allows you to archive files and data without power.

Prices of Dram chips have jumped 27 percent in the second quarter from the previous three-month period, while those of Nand chips have gained 8.6 percent, according to research provider TrendForce.

“The Dram upcycle is likely to continue as Samsung is unlikely to sharply increase chip supply amid extremely low Dram inventories,” Suh Seung-youn, an analyst at Heungkuk Securities, said in a recent report.

Samsung’s profits in its foundry business also improved when operations at its factory in Austin, Texas returned to normal. suspensions induced by snowstorm of February. The South Korean company plans to invest $ 17 billion in a new US plant for the manufacture of contract chips.

Robust chip sales have helped offset lower smartphone shipments as demand is slowing for Samsung’s latest flagship model launched in mid-January. The company shipped about 59 million smartphones in the second quarter compared to 76 million in the first quarter, according to Shinyoung Investment & Securities.

Analysts say Samsung’s mobile shipments have been hit by declining demand from India and have disrupted production at its Vietnamese plants as Covid-19 outbreaks spread to both countries. Lack of chips too blames smartphone production.

Samsung announced in April that smartphone manufacturing, televisions and appliances it had been disrupted by the chip crunch and that it had “rebalanced” production to minimize impact.

Shares of Samsung fell 1.1 percent Wednesday morning, after gaining about 50 percent last year. The company will announce detailed second-quarter results later this month.

Strong guidance comes as controversy grows over whether Samsung’s boss Lee Jae-yong should be released from prison. The billionaire heir to the group’s founding family is serving 18 months for corruption.

He will appear in court Thursday for a separate hearing on alleged accounting fraud and manipulation of stock prices related to his succession. He is also accused of illegal use of propofol, a medical drug.

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