Company / Analytics

Analytics, 08 July 2021

Samsung Q2 2020 Earnings Outlook

Samsung Electronics reported a likely 53% jump in second-quarter operating profit, beating market estimates on the back of strong chip prices and demand despite lower smartphone sales.

The leading global memory chip and smartphone maker benefitted from demand spurred by a pandemic-led consumer appetite for electronics as well as recovering investment in data centers and appears largely unaffected by current global chip shortages.

Samsung earnings

Samsung released limited data in Wednesday’s regulatory filing ahead of the release of detailed earnings figures later this month. Samsung said profit for the quarter ended June 30 was likely 12.5 trillion won ($11 billion), well above analyst estimates of 11.3 trillion won. The South Korean electronics giant’s outlook easily beat analysts’ expectations, signaling continued strength for the technology industry. If the figures are confirmed later this month, it would be Samsung’s biggest second-quarter profit since 2018.

The preliminary result is up 33% from the first quarter and underscores the soaring demand for chips that have depleted stockpiles amid a pandemic-led consumer appetite for electronics and recovering investment in data centers.

Samsung posted a 9.4 trillion won ($8.48 billion) operating profit in the January-March quarter, at the time, its highest first-quarter and was driven by a 66% profit surge at its mobile business which reported 4.4 trillion won, led by sales of its flagship Galaxy S21 smartphone series. Profit also soared at its television set and home appliance business, buoyed by continued stay-at-home demand. First-quarter net profit rose 46% to 7.1 trillion won. Revenue climbed 18% to 65.4 trillion won.

In the April – June quarter, Samsung’s smartphone shipments fell to about 59 million, from about 76 million in the first quarter, according to Shinyoung Investment & Securities, as sales of its flagship model launched in the first quarter slowed.

New COVID-19 outbreaks in regions such as India and Vietnam, as well as constrained supply of mobile processor chips, also hurt smartphone shipments in the quarter but were expected to improve in the second half.

Samsung largely unaffected by chip shortages

In March, Samsung’s co-chief executive and mobile chief, Koh Dong-jin told shareholders: “There’s a serious imbalance in supply and demand of chips in the IT sector globally.” He also said that the company was working with overseas partners to meet demand as global shortages caused supply disruptions.

In recent months, computer chip makers, in particular, have had much greater power to increase their prices during the historic supply crunch.

For the second quarter, Samsung’s chip division profit likely jumped by a fifth or more from a year earlier, analysts said, helped by strong memory-chip prices and demand for consumer electronics and from data center customers. Samsung’s memory chip shipments, especially for DRAM chips widely used in servers, mobile phones, and other computing devices, were larger than expected, contributing to chip profits that dwarfed a steep quarter-over-quarter fall in smartphone shipments.

In the earnings call later this month, investors will be interested in understanding how much the chip contract manufacturing business has progressed in competitiveness and the current status of foundry customers and orders. In addition, analysts will be looking for comments on what changes Samsung expects in memory chip profitability, as competitors like Micron are said to be narrowing the technology gap (with Samsung).

How did Samsung stock move?

Samsung shares fell 1% in morning trade, while the wider market (.KS11) fell 0.7%. Samsung shares have traded nearly flat so far this year versus a 15% rise in the benchmark KOSPI. The stock was trading at 80,800 KRW at the time of writing.

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