Chips drive Samsung Q2’s highest profits since 2018, but demand cooling

SEOUL, July 7 (Reuters) – South Korea’s Samsung Electronics Co Ltd (005930.KS) on Thursday posted its best April-June profit since 2018, buoyed by strong sales of memory chips to server customers, even as demand from inflation-hit smartphone makers cools.

Shares of the world’s largest maker of memory chips and smartphones closed up 3.2% after the announcement of preliminary results, compared to a rise of 1.8% in the broader market (.KS11).

Shares of other chipmakers, including rival SK Hynix (000660.KS) and the world’s largest foundry TSMC (2330.TW)also rose as analysts said tight supply of some chips could help offset slowing demand that is driving down memory chip prices.

Samsung posted operating profit of 14 trillion won ($10.7 billion), up 11% from 12.57 trillion won a year earlier, just short of 14.45 trillion won SmartEstimate from Refinitiv.

Second-quarter revenue rose 21% to 77 trillion won, in line with market estimates.

The strong quarter for Samsung comes at a time when other chipmakers have warned of an impending glut of chips among customers stocking up during the pandemic to meet increased demand from people working from home.

Chipmakers including Micron (MU.O) and advanced micro-devices (AMD.O) also recently reported falling demand as searing inflation squeezes spending. Read more

“Memory chip makers are expected to build inventory this year, keep supply conservative and increase shipments as prices rebound and demand picks up next year,” said Park Sung-soon, an analyst at Cape Investment. & Securities.

Prices for specific DRAM chips, used in devices and servers, fell about 12% last month from a year ago, according to data provider TrendForce. Prices for NAND Flash chips, used for data storage, are also expected to fall 5% in the July-September period from the previous quarter.

The logo of Samsung Electronics is seen at its office building in Seoul, South Korea March 23, 2018. REUTERS/Kim Hong-Ji

SMARTPHONE DEMAND IS WEAKING

Rising inflation, worries about a slowdown in major markets, war in Ukraine and COVID-19 lockdowns in China have led to slower smartphone sales, leaving demand for server chips as the only bright spot , according to analysts.

Samsung’s profits have been protected as major US tech companies such as Amazon (AMZN.O)Microsoft (MSFT.O)alphabetical (GOOGL.O) Google and meta (META.O) who use many data center services continued to purchase chips to meet cloud demand, they added.

Citing high demand for servers, Taiwanese contract electronics supplier and Apple iPhone maker Foxconn (2317.TW) on Monday raised its outlook for the full year and said it was optimistic for the third quarter. Read more

A strong dollar, which hit a 20-year high, may also have helped Samsung’s second-quarter chip profits. Read more

Samsung’s chip sales are mostly in dollars, while it reports earnings in Korean won, so a firm greenback translates to higher chip revenue.

Estimated shipments of smartphones by Samsung’s mobile business in the second quarter were around 62-64 million, about 5-8% lower than a March estimate, Counterpoint Research said, as inflation hit the demand for smartphones.

Samsung shipped 74 million smartphones in the first quarter.

“This trend is the same for the world’s leading smartphone manufacturers, although there are some discrepancies…In particular, the hit to low-end and mid-range smartphone demand seems more severe,” said Jene Park, principal analyst at Counterpoint.

($1 = 1,304.4400 won)

Reporting by Joyce Lee and Heekyong Yang; Editing by Sayantani Ghosh and Himani Sarkar


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