Samsung estimates record jump in Q3 profit, but chip price falls cast shadow

Preliminary operating profit climbed 20.4 per cent in line with market expectations

Samsung’s mobile division is expected to struggle in coming months, say analysts . Reuters

South Korean company Samsung estimated third-quarter operating profit to jump to a record high, with its semiconductor unit bolstered by robust demand from data centres and gains in production yields.

Analysts expect the July-September quarter will mark a peak in earnings for the South Korean tech giant.

However, competition from cheaper Chinese made phones as well as higher marketing costs have also meant that an imminent rebound for Samsung’s mobile unit is unlikely.

“Falling chip prices will pressure profits while its smartphone shipments are not satisfactory and will continue to crimp margins,” said Song Myung-sup, a senior analyst at HI Investment & Securities, a Seoul-based financial services company.

Third-quarter results for the world's top maker of memory chips and smartphones were, however, impressive. Preliminary operating profit climbed 20.4 per cent to 17.5 trillion won ($15.5 billion) on a 4.8 per cent gain in revenue, in line with market expectations.

The firm did not elaborate on its performance and will disclose detailed earnings in late October.

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Chips account for nearly 80 per cent of Samsung’s operating profit and Samsung has benefited from a surge in data centres for cloud computing that has spurred spikes in prices for DRAM chips. DRAM chips, which help devices perform multiple tasks, are its main memory product.

But prices for NAND chips, used for longer-term data storage, have tumbled as supply swamps demand. Prices for DRAM are expected to follow suit, albeit at a much slower pace with some analysts saying Chinese data centre demand will lend support.

Samsung is also forecast to book decent operating profit growth of 12 percent in the fourth quarter, Refinitiv data shows. But that is seen dropping to minimal profit growth in the first half of 2019 followed by small profit declines in the second half.

Shares in Samsung rose 0.2 per cent on Friday, while the broader market fell slightly. The stock has lost 12 per cent so far this year on concerns about chip prices, underperforming the broader market which has declined 8 per cent.

While income levels for Samsung’s business divisions are yet to be disclosed, analysts expect its mobile business will struggle to deliver profit growth for the next two quarters.

It is working on bringing phones with bendable screens to market but they are not expected to become a huge profit driver.

"Its mobile division will continue to look bad. Samsung’s upcoming foldable phones are not going to be meaningful in terms of sales, more of a symbolic move in terms of innovation," said Park Sung-soon, an analyst at BNK Securities, which provides research services for stock investments in South Korea.