Samsung Electronics sees profit decline on weak chip demand after strong third-quarter earnings

Samsung Electronics Co Ltd <005930.KS> 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 posted a 59% jump in operating profit in the July-September quarter, on the back of its highest quarterly smartphone profit since 2014 at 4.45 trillion won (3.03 billion pounds).

A near 50% jump in sales of smartphones likely reflects gains in Samsung`s share of the market as U.S. restrictions hit Chinese rival Huawei Technologies Co Ltd, analysts said.

Lower marketing costs amid the coronavirus pandemic were also a likely factor, analysts said.

Samsung said its chip profit surged 82% 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 U.S. restrictions offset weak demand from servers.

Samsung`s display business, which counts Apple Inc among its customers, said its operating profit fell from a year earlier because of delays of new model launches by a major customer.

Operating profit in the third quarter was 12.35 trillion won from 7.78 trillion won a year earlier, in line with the company`s estimate earlier this month.

Revenue climbed 8% to 66.96 trillion won. Net profit rose 49% to 9.36 trillion won.

"Soft prices in server memory due to customers’ inventory adjustments will likely weigh down the Memory Business despite stable demand for mobile and laptop memory," Samsung said in a statement.
Samsung`s smartphone shipments in the current quarter are expected to drop about 5% compared to the previous period due to competition from Apple`s newest iPhone 12 and a lack of new Samsung flagship models, analysts said.

"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 would benefit from robust demand for Apple`s first 5G iPhones, he added.

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Samsung`s shares fell 1.4% in early trade on Thursday, compared to the wider market`s <.KS11> 1.3% fall.