Samsung’s booming smartphone sales overcome hit to chip production

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Samsung Electronics has projected an almost 45 per cent jump in its first-quarter profits on strong sales of smartphones and home appliances, helping offset a hit to its chip production from storms in Texas.

Operating profit rose 44.2 per cent year on year to Won9.3tn ($8.3bn) in the January to March quarter, the South Korean technology group estimated on Wednesday. That would mark its biggest first-quarter increase since 2018, in line with the projections of analysts polled by Refinitiv. Samsung forecast that sales rose by 17.5 per cent year on year to Won65tn.

Earnings at the world’s largest maker of memory chips, smartphones and electronic displays should improve in the coming quarters as chip prices continue to rise on tight supply, analysts believed. The global supply of semiconductors has been slammed by booming demand for electronic devices during the coronavirus pandemic and shortages caused by production shutdowns in the US and Japan.

Analysts pointed to the strong performance by Samsung’s mobile division in the first quarter after the group launched a flagship smartphone and mid-priced models in January, about a month earlier than usual. Sales of premium TVs and other high-margin consumer electronics also jumped as housebound consumers splashed out on home appliances.

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The robust earnings also highlighted a full recovery for Samsung from the economic fallout of the pandemic, even if its operating profits were still about half the level of its peak of the semiconductor cycle in 2018. 

Samsung is estimated to have garnered about 23 per cent of global smartphone sales between January and March. That compared with 16 per cent in the preceding quarter, when US rival Apple was boosted by the launch of its new iPhone, according to Counterpoint Research.

Kim Young-woo, an analyst at SK Securities, estimated that operating profits at Samsung’s mobile division rose 66 per cent to about Won4.4tn as the group continued to benefit from US sanctions against Chinese competitor Huawei.

On Monday, Seoul-based rival LG Electronics announced it would close down its lossmaking smartphone business after years of struggling to compete against Samsung, Apple and low-cost Chinese upstarts.

“Samsung’s results from the mobile and home appliance divisions were very strong thanks to the early releases of its phones and lower production costs,” said Kim. “Its foundry business suffered losses due to a power failure in the Austin plant. But chip prices began to rise in March and will increase further in the second quarter.”

A massive snowstorm in Texas in February that caused widespread power outages forced Samsung’s Austin chip plant offline for more than a month. Analysts estimated the losses from suspended production to be Won300bn-Won400bn. The company said the plant’s operations had almost returned to normal as of late March.

Last month, Samsung sounded the alarm over a “serious imbalance” in the semiconductor industry as a chip shortage that has disrupted carmakers threatened to spill over into the broader technology sector.

Separately, LG forecast record quarterly results on Wednesday, following robust sales of premium home appliances. Its operating profit rose nearly 40 per cent year on year to Won1.5tn as sales grew 28 per cent to Won18.8tn, according to the company’s preliminary estimates.

 

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