Netflix Binges Are Just Fine With Samsung

(Bloomberg Opinion) -- Now it’s official. Even technology giant Samsung Electronics Co. is afflicted by the coronavirus and expects a tough year.

“Shrinking market and store closures make a drop in earnings seem inevitable,” the South Korean company said of its smartphone unit. A drop in consumer electronics demand was also inevitable this quarter, Samsung said. Profit will slip in its displays business, and specific categories of semiconductors would be “soft.”

There is one bright spot though: memory chips.

Samsung is the largest maker of both dynamic random-access memory and NAND flash. The former is used in computers and servers to hold data temporarily, an important element in speeding systems and ensuring information can flow smoothly across networks. The latter is used increasingly in servers to store information because it’s quicker than traditional magnetic spindle drives.

Demand for both types will be solid this quarter as more people work from home, the company said Wednesday. Into the second half, conditions will remain “favorable,” although a broader economic slowdown spurred by Covid-19 could offset these gains.

Across the tech spectrum, companies that serve digital content to people who are confined to their homes are seeing upticks in usage.

Zoom Video Communications Inc. last week reported a 50% surge in use of its online meeting application, crossing the 300 million mark on April 21. Peloton Interactive Inc., the provider of internet-connected exercise bikes, set a record with 23,000 people joining a single live class. Netflix Inc. added 15.8 million paid subscribers last quarter, double analysts’ forecast. 

Whether logging on from home, getting sweaty on a bike, or chilling on the couch, every single user of these services drives demand for memory chips. Live-streaming means there can be no backlog in data, which has to be processed and delivered now. To do so requires more DRAM.

This suits Samsung very well. The huge size of its semiconductor operations means that the company can benefit from economies of scale in ways that it can’t in smartphones. While chips account for 32% of revenue, they contribute 62% of operating profit.

Samsung already knows that its consumer devices, such as phones and televisions, aren’t going to escape the Covid-19 downturn. But as long as customers stay at home and watch Netflix, things might not be so bad.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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

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