Sat, Oct 05, 2013 - Page 15 News List

Chips boost Samsung as S4 sales flag

LUCKY CHIPS:Samsung has benefited from last month’s fire at its rival SK Hynix and a supply crunch from years of cautious investment that is buoying an in-demand chip market

Reuters, SEOUL

Samsung Electronics Co Ltd is on track to post its second consecutive year of record earnings as a rebound in its semiconductor business shields the South Korean tech giant from a slower smartphone market.

The world’s biggest memory chipmaker is likely to see its semiconductor earnings charge to a three-year high — a much-needed shot in the arm — just as sales of its flagship Galaxy S4 smartphone begin to flag, analysts say.

The global chip market has rallied since late last year due to a supply crunch caused by years of cautious investment to support prices, and conversion of factory capacity to produce more profitable chips used in smartphones and tablets.

The market further tightened following a fire early last month at a Chinese plant owned by SK Hynix, the world’s No. 2 chipmaker. The drop in supply helped divert customers to Samsung, whose heavy investment in cutting-edge chipmaking technologies has made it head and shoulders above smaller rivals like Micron Technology Inc.

“As of now, there is no real competitor for Samsung in the [memory] chip business,” said Lee Seung-woo, a tech analyst at IBK Investment & Securities.

“This dearth of players is expected to allow Samsung to post considerable operating profits throughout this year and next year, even if demand flags,” Lee said.

Samsung is estimated to post an operating profit of 38.5 trillion won (US$35.85 billion) this year, up a third from last year, according to a survey of 45 Thomson Reuters analysts. The company said yesterday operating profit is likely to reach a record 10.1 trillion won in the third quarter.

Contract dynamic random access memory (DRAM) chip prices jumped 9 percent in the second half of last month from the first half of that month, while spot prices soared 37 percent.

UBS estimates that the supply of DRAM chips by SK Hynix would shrink by 14 percent in the fourth quarter, plunging the overall DRAM market into a supply deficit of about 7 percent. The South Korean firm aims to fully restore operations next month.

Samsung estimated third-

quarter operating profit rose 25 percent from a year earlier, the slowest since the third quarter of 2011 when profit shrank 11 percent.

Samsung’s mobile devices business has helped the company report a record profit every quarter since last year, except the first three months of this year.

The division, which generates two-thirds of the company’s total earnings, is stalling as sales of the Galaxy S4 slow and the high-end market rapidly saturates, analysts say.

“The concern that high-end smartphones could see slower growth is a valid one, but Samsung has both the speed and fast-follower tendencies of Zara and a portfolio spanning high and low-end products, as well as components such as a brand like Swatch,” Lee said.

Barclays estimates S4 smartphone sales will have dropped to 16 million sets in July to last month from about 20 million in the two months following its late April debut.

Sales may slip further to 13 million sets in the fourth quarter, Barclays said.

Samsung is widely expected to have sold 86 to 88 million smartphones in the third quarter, up from 76 million in the second quarter, as the company increased shipments of cheaper models to emerging markets.

Profits at its mobile division are seen at 6.4 trillion won, better than the second quarter’s 6.3 trillion won, but down from a record 6.5 trillion won in the first three months of the year.

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