Samsung Electronics Co expects higher first-quarter profits, as millions of people working from home in COVID-19 lockdowns turn to cloud data services, pushing up demand for its chips, it said yesterday.
The pandemic is wreaking havoc across the global economy — Samsung itself had operations suspended at 11 overseas assembly lines as of yesterday — and is widely expected to cause a recession.
Analysts expected that the company’s smartphone and consumer electronics businesses would be buffeted by falls in consumer demand, but changing behavior patterns — at least initially — among the vast numbers of people forced to stay at home around the world have generated a silver lining for the world’s biggest smartphone and memory chipmaker.
Photo: EPA-EFE
In the first three months of this year, operating profits edged up 2.7 percent from last year to about 6.4 trillion won (US$5.27 billion), Samsung forecast in an earnings estimate.
The figure — higher than expectations — was based on sales of 55 trillion won, up 5 percent year-on-year.
“There has been high demand for memory chips for data servers, as an increasing number of people are now working from home due to the outbreak,” Hong Kong-based Counterpoint Research analyst Tom Kang said. “We are also seeing a hike in demand for laptops, because we have many companies that are not fully ready for working digitally.”
Shares in Samsung yesterday closed up 1.8 percent, having fallen nearly 20 percent from a record high in January amid concerns over the pandemic and its economic repercussions.
Samsung had pinned its hopes for this year on the introduction of its new 5G and premium smartphones, including its new folding Galaxy Z flip phone, hoping that they would boost purchases.
However, increasing uncertainty going into the second quarter is expected to “exacerbate troubles,” an industry source said on condition of anonymity.
Global smartphone sales fell 14 percent in February year-on-year, with China seeing a decline of nearly 40 percent, Counterpoint said.
“Semiconductor earnings look set to increase on the back of memory chip price hikes,” HMC Securities & Investment senior vice-president Greg Roh said, but added that the consumer electronics and IT and mobile divisions would “likely see their earnings decline.”
Samsung’s key sales regions of North America, Asia and Europe are among the hardest-hit by the virus, James Kang of Euromonitor said.
“With suspended retail businesses, reduced shipments and weak consumer sentiment, sales in those regions could plunge dramatically in the second quarter,” he said. “A new lineup of premium products will play a key role in how successful Samsung will be in cushioning the blow.”
Adding to Samsung’s challenges, company vice chairman and de facto leader Lee Jae-yong is being retried over a sprawling corruption scandal that could see him return to prison.
He is not being held in custody during the proceedings, but a guilty verdict could deprive the firm of its top decisionmaker.
Samsung withholds net profit and sector-by-sector business performance data until it releases its final earnings report, expected later this month.
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