Samsung Profit Climbs to Record on Strong Memory-Chip Demand

(Bloomberg) -- Samsung Electronics Co. reported a 58 percent surge in profit, topping projections as demand for its memory chips remained strong enough to outweigh concerns about display supplies to Apple Inc.

Operating income rose to 15.6 trillion won ($14.7 billion) in the three months ended March, according to preliminary results released Friday from the Suwon, South Korea-based company. That compares with the 14.5 trillion-won average of analysts’ estimates compiled by Bloomberg. Sales for the first quarter climbed to 60 trillion won, compared with the 61.3 trillion won average projection compiled by Bloomberg.

The first-quarter result, which includes the sales of its marquee Galaxy S9 smartphone unveiled in February, may ease concerns about its display business after Apple sold fewer-than-projected iPhone X handsets with Samsung-made displays. Still, resilient demand for memory chips used in phones and servers could keep the electronics maker on track to post another year of record profit, after replacing Intel Corp. last year as the world’s biggest chipmaker by sales.

“Memory chips are the loyal son of Samsung,” said Lee Jae-yun, an analyst at Yuanta Securities Co. “Still, momentum may slow toward the end of this year with price rises likely to be less steep than last year.”

The shares of Samsung fell about 1 percent in Seoul, as the KOSPI index declined on concern over U.S. tariffs. The stock is down more than 5 percent this year, after climbing 41 percent in 2017.

Samsung is reporting its first results since de facto chief Jay Y. Lee was released from prison on a suspended sentence for a bribery conviction in February. The 49-year-old vice chairman has since traveled to Europe to meet with business partners and been spotted in Canada. His father, chairman Lee Kun-hee, remains hospitalized after a 2014 heart attack.

Samsung won’t provide net income or break out divisional performance until it releases final results, most likely on April 26, when a conference call is scheduled.

The semiconductor business forms the largest portion of Samsung’s profit. Prices for 128 gigabit MLC NAND flash memory chips fell 10.7 percent in the March quarter from the December period while contract prices for 32 gigabyte DRAM server modules climbed 5.6 percent in the same period, according to inSpectrum Tech Inc.

“Prices are expected to remain high,” said Mike Howard, vice president of memory research at French researcher Yole Developpement. “When you consider its entire memory business, there is an excellent chance that it will see higher profits in 2018.”

Last month at a shareholders’ meeting, Samsung reorganized its leadership to separate the roles of business executives and board members, responding to public calls to improve its transparency and accountability. Shareholders also approved a 50:1 stock split that will take effect following a trade suspension from April 30 to May 3.

“Demand for servers canceled out the effect of slow sales for iPhone X and premium Chinese smartphones,” Kim Yang-jae, an analyst at KTB Investment & Securities Co., wrote in a report before earnings. “Demand is exceeding market expectations.”

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net.

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Reed Stevenson

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