Samsung Electronics Co Ltd posted a 28% increase in operating profit on Friday, to its highest level in three years, driven by rising memory chip prices and display sales for its new flagship smartphone launches.
Preliminary earnings were up 26% from Q2 but were just below forecast, while market reaction remained subdued as analysts expected flat or slightly lower earnings for this quarter due to an expected drop in memory chip prices.
The world’s largest manufacturer of memory chips and smartphones estimates its profits from July to September at 15.8 trillion won (13.3 billion US dollars), which is below a SmartEstimate refinitive of 16.1 trillion won. It is the highest quarterly profit since the third quarter of 2018.
“Mobile operating margin may have been lower than the market expected,” said Park Sung-soon, an analyst at Cape Investment & Securities. “We’re going to have to see the marketing costs and the mix of products Samsung is selling.”
Rising prices and shipments of memory chips, as well as an increase in profitability in Samsung’s chip-to-order business, should push the chip division’s operating profit up about 79% year over year, analysts said.
Semiconductors made up about half of Samsung’s operating income for the first half of the year.
Samsung shares cut early gains and rose 0.4% in afternoon trading. The detailed results will be announced later this month.
The stock is down about 12% so far this year, versus a 3% increase in the overall market (.KS11) that was hurt by losses in September when US competitor Micron Technology Inc (MU.O) announced it would that its memory chip deliveries in the short term.
Analysts said memory chip prices are expected to fall this quarter as demand for PCs plummets amid an expected easing of global lockdowns that are fueling sales, while smartphone shipments could also decline.
A bright spot in the next year is expected to be Samsung’s chip-to-order business (2330.TW) to anticipate advanced technology and attract customers.
For Samsung’s wireless business, estimated sales of 2 million new foldable smartphones in a month showed that demand for its foldable handsets was more mass-marketed than last year, analysts said.
However, this was likely offset by marketing costs and higher component costs due to the global chip scarcity.
According to analysts, Samsung’s display unit likely achieved solid results as key customer Apple Inc (AAPL.O) increased orders ahead of the iPhone 13 series launch in late September.
Total sales likely rose about 9% year over year to a record 73 trillion won, Samsung said in a filing.