Samsung's Winning Big From a Boom in the Boring Stuff

(Bloomberg Gadfly) -- Samsung Electronics Co.’s handy little profit surprise in the three months ended in March didn’t come from those areas for which the South Korean giant is most famous.

While its Galaxy smartphone did help drive sales, its OLED panels business – in which Samsung is the global leader – was a drag on earnings.

Hunger for the panels that go into the iPhone X boosted hopes this could be a long-term winner. But not only is the Apple Inc. flagship not selling so well, Cupertino is already making plans to move away from OLED in future devices. People familiar with the plans have told me there may be only one or two more cycles of OLED before alternative technology is brought in, possibly MicroLED.

Which leaves us with the real hero, memory chips. And not those used in humdrum devices such as PCs, tablets and phones, but in the good stuff, like high-end servers and graphics cards.

Cryptocurrency was cited as a spur, which will get the Bitcoin crowd excited, but thankfully the strength runs deeper than anarchists’ favorite play toy. Datacenters are where it’s at, not only in DRAM (which speeds up processing), but also NAND flash (which stores data).

Operating margins at Samsung’s chip division climbed above 55 percent, the highest in at least five years, according to Gadfly calculations. It’s unlikely such elevated margins can be sustained for long, but there’s good reason to bet on high-performance computing applications such as AI and machine learning to continue the growth.

That was one of the themes of Taiwan Semiconductor Manufacturing Co.’s earnings call last week, when executives said high-performance computing will contribute more growth than smartphones.

Components for big fat servers aren’t as sexy as smartphones and their fancy OLED screens, but they make money. And that’s all that matters right now.

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

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