Samsung Profit Climbs With Strong Chip Demand, Pricey Phones

(Bloomberg) -- Samsung Electronics Co.’s operating profit rose more than 25% thanks to rising prices for semiconductors and surprisingly strong demand for its pricey foldable smartphones. 

South Korea’s largest company reported operating profit of 15.8 trillion won ($13.2 billion) in the three months ended September, in line with the 15.75 trillion won average of analyst estimates. Sales were 73 trillion won, compared with estimates of 73.5 trillion, according to preliminary results released Friday. Samsung will provide net income and divisional breakdowns when it releases final results on Oct 28.  

The world’s largest maker of memory chips and smartphones has benefited from strong demand as the global economy recovers from the Covid-19 pandemic. Chronic shortages have pushed up prices of memory chips, used in everything from mobile phones to smart cars and the data centers powering cloud computing and services. Samsung is also expanding its foundry business, churning out custom chips for customers like Nvidia Corp. 

In the mobile business, Samsung is ramping up production to meet strong demand for its foldable phones. The Z series, launched in August, can run more than $1,800 but also includes the first sub-$1,000 foldable in the Galaxy Z Flip 3, which has expanded the category’s customer base. The company sold one million new foldable phones at home in Korea at the third fastest sales pace after its Note 10 and Galaxy S8, it said.

Samsung shares rose about 1% in Seoul after the announcement.

While Samsung is better known for smartphones outside of South Korea, its profits are largely driven by its memory-chip business. Semiconductors typically account for the largest slice of its income.

Memory chip prices are expected to fall in the current quarter because of stockpiling by customers, signaling a potential cyclical downturn. Micron Technology Inc., one of Samsung’s primary rivals, gave a conservative outlook because PC demand is slowing. 

What Bloomberg Intelligence Says 

“DRAM operating profit could climb due to sequential bit growth of 3-5% and also price rises in 3Q. NAND may also drive strong profit growth in 3Q due to a 10-15% sequential rise in bit shipments with a price increase of 5-9%. The chip shortage may help operating profit for the foundry business climb in 3Q. New foldable smartphones may fuel sales growth in the mobile division.”

- Masahiro Wakasugi and Anthea Lai, BI analysts 

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Micron Chief Executive Officer Sanjay Mehrota argued the wild swings between shortages and gluts are moderating due to a wider variety of devices that use the chips. In a separate message to clients, he said the memory maker is seeing cost increases that will be reflected in pricing. Analysts expect prices to stabilize over the long run.

“While we expect DRAM market weakness in 4Q in 2021 and 1Q in 2022 on weak PC demand and relatively high inventory level at clients, we believe memory makers are more likely to accumulate inventory and revise down their 2022 capex to support memory pricing, rather than maximizing production,” said Citigroup analyst Peter Lee. “In any case, we expect the DRAM market to recover in 2022 due to supply constraint, given limited available clean room space and the launch of DDR5 products.”

Samsung’s foundry business has benefited from the tech transition to 5G wireless technology and high-performance computing, which have increased the global need for more sophisticated chips.

The robust sales of the Z foldable phones are likely to continue into the first quarter and Chinese smartphone brands are increasing their purchases of foldable displays from Samsung, said Greg Roh, a senior vice president at HMC Securities.

©2021 Bloomberg L.P.