Samsung first-quarter beats estimates; chips likely to prop up virus-hit second-quarter

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SEOUL (Reuters) – Samsung Electronics Co Ltd (005930.KS) said on Tuesday its first-quarter operating profit likely managed to rise slightly from a slump a year earlier, as solid chip sales helped cushion the blow from the coronavirus pandemic on smartphones and TVs.

FILE PHOTO: The logo of Samsung Electronics is seen at its store in Seoul, South Korea, October 11, 2017. REUTERS/Kim Hong-Ji

The global leader in semiconductors is benefiting from higher demand for chips from laptop makers and data centres amid the coronavirus-driven shift to working from home, even as its mobile and consumer electronics businesses suffer.

Samsung said operating profit was expected to be 6.4 trillion won ($5.2 billion) in the quarter ended March, compared with 6.2 trillion won a year ago and the 6.2 trillion won estimate from analysts according to Refinitiv SmartEstimate.

Revenue likely rose 5% to 55 trillion won from a year ago, in line with the 55.6 trillion won estimate.

Samsung Electronics shares were 2.3% higher while the broader market .KS11 was up 1.9%.

The maker of smartphones, TVs, appliances, memory chips and displays is the first global tech company to report its January-to-March quarter earnings estimates.

Samsung Electronics said last month the coronavirus would hurt sales of smartphones – which accounted for about 47% of its revenue last year – and consumer electronics in 2020, while demand from data centres would fuel a recovery in memory chip markets.

“Even though Samsung’s mobile business was hit by the coronavirus outbreak this quarter, it will likely face bigger challenges in the second quarter – now that the United States and Europe have become the hardest-hit countries,” Kim Sun-woo, an analyst at Meritz Securities, said.

When the coronavirus outbreak started in China last year, Samsung’s strategy of spreading its production base to countries including Vietnam and India seemed to pay off as supply disruptions in China hit rivals such as Apple.

But as the virus spread across the globe, Samsung too has had to close factories and retail stores in Europe, India and the United States.

NH Investment & Securities said on Tuesday it expected sales of Samsung’s premium Galaxy 20 smartphone to reach 20 million units this year, far short of the 32 million it had forecast earlier.

LG Electronics (066570.KS), Samsung’s crosstown rival in TVs, phones and appliances, meanwhile said its first-quarter operating profit likely rose 21% to 1 trillion won. Analysts expect the coronavirus to affect LG this quarter.

CHIP BUFFER

Samsung Electronics did not provide a breakdown of earnings for each division in its guidance released on Tuesday.

Analysts say the company’s memory chip business, which generated more than 50% of its operating profit in 2019, would likely report better-than-expected results in the first half of this year.

Memory chip prices are rising as work-from-home requirements boost demand from the data centres that support internet services such as streaming and cloud computing, analysts have said.

Prices for DRAM memory chips are up more than 3.5% since January, according to industry tracker DRAMeXchange.

“If the coronavirus outbreak doesn’t die down in the third quarter, demand for memory chips might face a bump,” said Song Myeong-sup, an analyst at HI Investment & Securities.

Interactive graphic tracking global spread of coronavirus: open tmsnrt.rs/3aIRuz7 in an external browser.

Reporting by Heekyong Yang and Hyunjoo Jin; Editing by Stephen Coates

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