Memory chips power Samsung profit

By Jun Ji-hye

Samsung Electronics has reported another record operating profit for the first quarter as brisk sales of memory chips offset weak display panel sales.

In its earnings guidance for the January-March period, Samsung Electronics said it expects to generate 15.6 trillion won ($15 billion) operating profit. This was far better than the market forecast and also a fresh record in terms of quarterly operating profit. A year earlier, Samsung reported 9.9 trillion won.

Quarterly revenue increased to 60 trillion won compared to 50.6 trillion won during the same period of last year.

Samsung will not provide a net income or break out divisional performance until it releases the final results later this month.

Market analysts say it is no question that Samsung's memory chip business was the top contributor to help the company see an “earnings surprise.” The division was estimated to report an operating profit around 11 trillion won, accounting for about 75 percent of the total operating profit it generated during the quarter.

Samsung is the global leader in both the DRAM and NAND flash memory chip markets. The DRAM industry is becoming rationalized with the top three players including Micron Technology of the U.S. and SK hynix controlling the market, while the number of bits consumed sees moderate growth.

That means the leading players keep the supply under tight control via disciplined spending, helping them avoid any sharp downturns caused by excess supply, or at least limit such downturns to recessions that may have a major impact on demand.

It was also estimated that the firm may have gained the better-than-expected earnings thanks to the impressive performance of the company's newest flagship mobile Galaxy S9 smartphone.

“Samsung Electronics' strong performance would continue till the second half of the year,” said Kim Seon-woo, an analyst from Meritz Securities. “The selling price of memory chips and the amount of shipping is expected to increase continuously.”

Unlike the continued healthy performance of the two business categories, its display business is expected to be hit hard due to weak sales of Apple iPhone X, for which Samsung's display affiliate provided its premium OLED displays.

Samsung officials identified as risk factors the bubbling trade war between the United States and China, variables involving exchange rates and the government's move to reform the ownership structures of conglomerates.

In addition, a managerial vacuum is cited as another challenge for Samsung, after Samsung Electronics Vice Chairman Lee Jae-yong, the scion of the Samsung owner family, was released from prison in February.

After his release, Lee has taken a low-key stance, apparently mindful of unchanged controversy over the cozy relations between politics and business as well as financial regulators' ongoing initiative to reform governance structures of conglomerates.

This may have made it difficult for Samsung to make bold, strategic decisions such as large-scale investments or M&A deals.

Another uncertainty comes from China's growing pressure to reduce the price of semiconductors as well as U.S. protectionist moves.