Samsung Delivers Estimate-beating Q1 Performance, Virus Fallout In Store

Samsung Electronics Co. on Tuesday delivered better-than-expected first-quarter earnings as robust demand for chips apparently offset a slump in smartphone and home appliance sales amid the novel coronavirus pandemic, but analysts warned that the company may feel the pinch of the COVID-19 outbreak during the current quarter

SEOUL, (UrduPoint / Pakistan Point News - 7th Apr, 2020 ):Samsung Electronics Co. on Tuesday delivered better-than-expected first-quarter earnings as robust demand for chips apparently offset a slump in smartphone and home appliance sales amid the novel coronavirus pandemic, but analysts warned that the company may feel the pinch of the COVID-19 outbreak during the current quarter.

The South Korean tech giant put its first-quarter operating profit at 6.4 trillion won (US$5.2 billion) for the January-March period, up 2.73 percent from 6.23 trillion won a year ago.

It beat the market consensus of 6.19 trillion won in operating profit in the survey conducted by Yonhap Infomax, the financial arm of Yonhap News Agency, on 20 Korean brokerage houses.

In its earnings guidance, Samsung Electronics expected its first-quarter sales at 55 trillion won in the three-month period, up 4.98 percent from a year earlier. The figure was in line with the median estimate of 55.3 trillion won.

When it comes to operating margin, Samsung only recorded 11.6 percent in the first quarter, the lowest since the third quarter of 2016.

Samsung, the world's leading memory chip and smartphone vendor, did not break down performances of its respective business divisions, saying it will announce the detailed earnings later this month.

Analysts here said Samsung's semiconductor business may have helped the company stay afloat amid the novel coronavirus crisis on the back of increased demand for server chips for data centers and steady rise of memory chip prices.

"Increased non-face-to-face activities prompted by the COVID-19 outbreak has led to a surge in data traffic and server expansion," Kim Dong-won, an analyst at KB Securities, said. "It pushed up the average selling prices of memory chips." According to industry tracker DRAMeXchange, the average contract price of 8-gigabit DDR4 DRAM, a benchmark price for the category, reached $2.94 in March, up 2.1 percent from a month earlier, extending its price hike to a third consecutive month.

The average contract price of 128-gigabit 16Gx8 MLC NAND flash was $4.68 last month, up 2.63 percent from a month ago, according to DRAMeXchange.

Analysts here expected Samsung's chip business to have logged around 4 trillion won in operating profit in the first quarter.

But smartphone and home appliance sales might have slumped in the face of weak demand amid the COVID-19 outbreak around the globe, they said.

Samsung had to temporarily shut down about one-fourth of its global manufacturing bases, including those in India, Brazil and Russia, amid the spread of COVID-19.

Last month, it even shifted some of its premium smartphone production from South Korea to Vietnam.

Samsung also had to close its home appliance outlets in North America and other countries and asked consumers to use online shops for purchases.

Analysts said Samsung is expected to have shipped only 60 million smartphones in the first quarter, down from 72 million units a year ago, despite the launch of its new flagship smartphone line, the Galaxy S20, last month, as COVID-19 limited marketing activities.

Postponement of major sporting events, such as the Tokyo Summer Olympics and the UEFA EURO Championship, also dealt a hard blow to Samsung's TV sales, they added.

Analysts predicted Samsung's mobile and consumer electronics units to have posted an operating profit of 2.4 trillion won and 400 billion won, respectively, in the first quarter.

In particular, Samsung's display business may have suffered an operating loss in the January-March period due to the double whammy of projected slumps in mobile and TV sales, according to analysts.

Analysts expected Samsung's mobile and TV businesses to take a heavier toll in the second quarter as the pandemic is likely to further dampen demand for mobile handsets and home appliances in advanced markets like North America and Europe.

"Samsung's smartphone business suffered relatively little impact from COVID-19 in the first quarter as it does not rely much on the Chinese market," Yoo Jong-woo, an analyst at Korea Investment & Securities, said.

"The company started to see its smartphone shipments taking COVID-19 impact from mid-March as it spread across the United States and Europe." However, Samsung's chip business was projected to maintain its solid earnings in the second quarter.

"There are still concerns over slowing demand for mobile DRAM chips, but since there is a need for server capacity expansions, there will not be a significant change," Kim Sun-woo, an analyst at Meritz Securities, said.

Shares in Samsung rose 1.85 percent to close at 49,600 won on the Seoul bourse, outperforming the benchmark KOSPI's 1.77 percent increase. Samsung's first-quarter earnings guidance was released before the market close.