Samsung says Q1 profit likely $5.2 billion, beating expectations

Samsung says Q1 profit likely $5.2 billion, beating expectations

An advertisement for Samsung Electronics Co. Galaxy smartphones is displayed atop a building in the company’s mobile business factory in Gumi, South Korea, on Sunday, April 5, 2020.

SeongJoon Cho | Bloomberg | Getty Images

South Korean tech giant Samsung said Tuesday its operating profit for the three months that ended in March likely rose from a year ago and beat expectations slightly. 

Samsung said it expects 6.4 trillion Korean won ($5.23 billion) in first-quarter operating profit for 2020, up 2.7% from the 6.23 trillion won it posted for the same period a year earlier. Analysts predicted Samsung to estimate its operating profit for the quarter to be 6.2 trillion ($5.05 billion) won, according to Refinitiv SmartEstimate, Reuters reported. 

The company said it expects first-quarter consolidated sales of 55 trillion won, up almost 5% from a year ago. 

Samsung shares rose about 1.33% in morning trade on Tuesday. It is one of the first major tech companies to report earnings estimates for the January-March quarter in the middle of the coronavirus pandemic.  

The virus outbreak has led to growing concerns over demand for smartphones and other consumer electronics. Temporary closure of some Samsung factories and retail stores around the world is likely going to have an impact on sales. The company did not break down the operating profit and consolidated sales numbers for each of its business units in Tuesday’s guidance.

But a relatively weak Korean won, cost-saving efforts and strong demand for memory chips are set to drive the company’s earnings, according to SK Kim, executive director and analyst at Daiwa Securities.

He explained on CNBC’s “Squawk Box” that the virus outbreak has pushed more people to work from home and make their purchases online. That is boosting demand for memory chips from data centers, which they support a variety of internet services.

“This will continue to drive memory price high in the second quarter, which will offset weakness on the mobile as well as the TV (business),” Kim said. 

Memory components used in smartphones and data centers make up Samsung’s main profit-making business. The environment had been less than favorable in recent quarters as price and demand for memory chips had been low for a prolonged period, due to inventory adjustments and a supply glut. 

But that outlook appears to be shifting. 

Despite the broad negative impact brought about by the coronavirus outbreak, South Korea’s semiconductor exports are expected to record positive year-on-year growth in April, according to CW Chung, head of research for Korea at Nomura. 

“We have not seen any order cuts from customers,” he said in a note dated April 1, adding that memory chip prices continued to increase in the first quarter of 2020 and are predicted to accelerate in the second quarter. 

Chung explained that though there is a growing possibility of a slowdown in demand for consumer electronics, including smartphones, the memory chip market is set to remain strong. Companies are pre-emptively procuring their inventory while the rising trends of working from home and online learning due to the ongoing pandemic are creating strong demand. 

He added that if the pandemic continues into the second half of 2020, then it could affect the demand-supply dynamics of the memory chip market, particularly the strong average selling price trend. “Considering the current supply and demand scenario, we see low possibility of a market double-dip yet, but if COVID-19 outbreak continues into 2H20, we see higher possibility of a market double-dip,” he said.

COVID-19 is the respiratory disease caused by the coronavirus that has infected more than 1.34 million people worldwide and killed over 74,400, according to data from Johns Hopkins University. 

Apart from memory chips, Samsung is one of the largest smartphone makers in the world, competing with the likes of Apple and Huawei. It also sells other consumer electronics products like home appliances and television sets. 

For its part, Apple in February said it does not expect to meet its second-quarter forecast for revenue, citing supply constraints for iPhones and lower Chinese demand due to the virus outbreak. 

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