HONG KONG (Reuters Breakingviews) - Samsung Electronics might not mind working from home. A surge in virtual meetings and other remote working activity lifted demand for memory chips used in data centres even as demand for smartphones, display panels and other branded products likely fell. The all-pervasiveness of semiconductors is proving a useful hedge for the South Korean giant.
The $263 billion tech conglomerate is weathering the Covid-19 pandemic well so far despite plunging demand for smartphones, which made up 44% of Samsung’s total revenue last year. First-quarter operating profit rose 3% year-on-year, to a better-than-expected $5.2 billion, according to earnings guidance reported on Tuesday. That’s probably thanks to strong memory chips sales, which power more than half of the company’s operating profit. A weak local currency and reduced marketing costs may have helped too.
Legions of homebound white-collar workers and students played a role. As online conference calls and video-streaming services take off around the world, companies like $34 billion Zoom Video Communications are scrambling to beef up data centres and other infrastructure to manage the spike in traffic. Bored consumers too are spending more time on Netflix or ByteDance’s TikTok app for entertainment.
That’s good for Samsung, whose so-called dynamic random-access memory chips are vital to everything from mobile handsets to laptops to cloud computing. Prices of DRAM are forecast to rise as much as 10% quarter-on-quarter in the three months to June, industry tracker TrendForce estimated last month before the outbreak went global. Moreover, Samsung and rivals SK Hynix and Micron have been aggressively slashing output and capital spending since last year in response to a supply glut. If contagion fears continue to push music concerts, yoga sessions and more online, that will offer some support to semiconductor prices.
The pandemic may yet wreak further havoc on businesses buying servers and chips. For now, semiconductors are proving to be a much-needed cushion as other parts of the company are whacked by supply chain disruptions and weakening consumer sentiment. Samsung is dialling up some of the benefits of its sprawl.
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