SEOUL (Reuters) – Samsung Electronics Co Ltd (005930.KS) on Wednesday said quarterly operating profit likely fell at a milder pace than analysts forecast, indicating memory chip prices bottomed out and strengthening hope of recovery from an industry downturn.
FILE PHOTO: Samsung Electronic’s Galaxy A90 is seen on display at a Samsung store in Seoul, South Korea, November 14, 2019. REUTERS/Kim Hong-Ji
Samsung, the world’s biggest maker of memory chips, has seen earnings drop since late 2018 as a weak global economy curbed spending by data center customers while rising inventories squeezed prices, ending a two-year industry boom.
But expected easing in the Sino-U.S. trade war is lifting optimism for a return of demand this year from server customers and makers of fifth-generation (5G) network-ready smartphones. Last month, Samsung’s U.S. chip rival Micron Technology Inc (MU.O) forecast the industry to recover in 2020.
“The DRAM chip price has already hit bottom while inventories have been holding at lower levels – a potentially encouraging sign to pull up DRAM prices in the second quarter,” said analyst Park Sung-soon at Cape Investment & Securities.
Samsung said it expected to report later this month a 34% drop in operating profit at 7.1 trillion won ($6.04 billion) for its fourth quarter ended Dec. 31 versus the same period a year earlier.
That would beat the forecast 6.5 trillion won operating profit from Refinitiv SmartEstimate, helped by one-off gains, analysts said.
Its revenue declined 0.5% to 59 trillion won, missing the 60.7 trillion won forecast from Refinitiv SmartEstimate.
Annual operating profit likely fell 53% to 27.7 trillion won, the lowest since 2015 and steepest decline in a decade.
(GRAPHIC: Samsung Electronics annual operating profit – here)
Earnings from chips and mobile devices in the fourth quarter were better than analysts expected, whereas the display business lagged, said a person with direct knowledge of the matter, declining to be identified as the information was not public.
“Samsung’s Q4 mobile shipments rose from last year as sales in LATAM, South Asia and Europe were more robust,” said analyst Tom Kang at market researcher Counterpoint. “This was partially from Huawei’s overseas losses and Samsung’s new A series,” he said, referring to Chinese rival Huawei Technologies Co Ltd which is tackling restricted access to U.S. suppliers.
Premium smartphone sales also boosted earnings, Kang said.
Samsung is expected to announce a new version of its flagship Galaxy S smartphone and a foldable handset on Feb. 11.
In displays, Samsung – an Apple Inc (AAPL.O) supplier – shut a liquid-crystal display production line in September, hit by falling prices and slower demand for television sets and smartphones coupled with rising competition from Chinese rivals. Samsung plans to convert the line for more advanced displays.
Reporting by Hyunjoo Jin and Heekyong Yang; Editing by Richard Pullin and Christopher Cushing