Samsung posts best quarterly operating profit in two years in third quarter

Samsung Electronics said on Thursday it expects fourth-quarter profit to fall due to weak server chip demand and rising smartphone competition, after posting its best quarterly operating profit in two years in the third quarter.

The world’s top maker of smartphones and memory chips flagged a recovery in the mobile and chip markets next year although it was wary of disruption from coronavirus and US-China trade tensions in the short-term.

"Global demand is forecast to increase year-on-year, but uncertainties are unlikely to ease given the possibility of additional waves of the pandemic," Ben Suh, Samsung's executive vice-president of investor relations, said in an earnings call.

Samsung said mobile chip demand would rise in the fourth quarter as Chinese customers boost orders following US restrictions on Huawei, but server chip demand would remain weak due to large customer inventories.

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Operating profit in the July-September period jumped 59 per cent to 12.35 trillion won (€9.3bn) on the back of Samsung’s highest quarterly smartphone profit since 2014 at 4.45 trillion won.

In the third quarter a near 50 per cent surge in smartphone sales likely reflected gains in Samsung’s share of the market as rival Huawei lost market share due to the US restrictions, while lower marketing costs amid the pandemic were also a factor, analysts said.

Samsung said its chip profit leapt 82 per cent to 5.54 trillion won from a year earlier as higher sales of low- and mid-end smartphones and inventory buildup from Huawei ahead of the US restrictions offset weak demand from servers.

Samsung’s smartphone shipments in the current quarter are expected to drop about 5 per cent compared to the previous period due to competition from Apple’s newest iPhone 12 and a lack of new Samsung flagship models, analysts said.

Marketing costs

"With Huawei's presence becoming fainter in the smartphone market, Samsung's marketing costs are expected to be higher in the current quarter as Apple, Vivo, Xiaomi and Samsung try to take over Huawei's market share," said Park Sung-soon, an analyst at Cape Investment & Securities.

Samsung’s display earnings, which reported weaker third quarter operating profit as major customer Apple delayed launching its new model, would benefit from robust demand for Apple’s first 5G iPhones in the fourth quarter, he added.

Its foundry business reported a new high for quarterly sales on recovered mobile demand, while its logic chip business said it plans to achieve double-digit sales growth next year.

Samsung’s home appliance and TV business posted record earnings in the third quarter, driven by “stay-at-home” trends and governments’ expansionary policies such as unemployment benefits.

Revenue climbed 8 per cent to 66.96 trillion won. Net profit rose 49 per cent to 9.36 trillion won. – Reuters