Weakening local currency boosts Samsung profit in Q3

By Lee Min-hyung

Samsung Electronics reported 73 trillion won ($61.16 billion) in sales during the July to September period, up 9 percent from the previous year, based on the won's weakness against the dollar. It also saw improved profitability in its semiconductor business, the company said Friday in a preliminary earnings report.

The third quarter results are the first time that Samsung has topped the symbolic 70 trillion won in quarterly sales. The company is also estimated to have achieved a 15.8 trillion won operating profit ― up 27.9 percent ― during the same period.

Samsung is widely expected to have improved its revenue from the chip division by a huge margin during the third quarter, based on rising DRAM prices and the steep increase in the won-dollar exchange rate.

The weakening won against the U.S. dollar has boded well for Samsung's exports. Starting from July, the exchange rate has surged to around the 1,190-won mark as of Thursday, the first time the rate reached that level in about 14 months.

The nation's securities industry estimates that Samsung has reaped an operating profit as high as 10 trillion won from its semiconductor division. The company will share a specific earnings breakdown later this month.

“The prices for DRAM and NAND flash chips increased in the third quarter, and demand for them also remained solid, so Samsung appears to have improved profitability in its chip business by a huge margin,” Kiwoom Securities analyst Park Yu-ak said.

But global investment banks remain pessimistic on the short-term outlook for the semiconductor industry.

Goldman Sachs is on track to cut its target share prices for Samsung Electronics and SK hynix ― the country's largest chip vendors ― predicting the prices for memory chips, including DRAMs, will decline. The investment bank also expects that demand for memory chips will fall on a short-term basis until the second quarter of 2022.

Reflecting this outlook, Goldman Sachs revised Samsung Electronics' target stock price down to 100,000 won per share. That of SK hynix was also adjusted to 125,000 won, from 177,000 won, based on the forecast of the slowdown.

This situation will push Samsung to widen its revenue from its IT and Mobile Communications Division. Brokerage houses here expect its mobile unit to have generated as much as 28 trillion won in third-quarter sales, based on the stronger-than-expected success of its new foldable smartphones. Sales of Samsung's third-generation Galaxy Z Fold and Flip smartphones have topped 1 million as of Oct. 4, just 39 days after their launch here.

“Samsung's stock price is facing widening volatility based on a slowdown in the memory chip industry and escalating uncertainty in the global economy, but our view is that Samsung shares will pick up momentum for a rebound sometime around the end of 2021 based on hopes of improved chip market sentiment,” Park stated.