Samsung Electronics expects continued chip boom after record second quarter profit

SEOUL (Reuters) - Samsung Electronics Co Ltd said a memory chip boom that propelled it to record profit in the second quarter is likely to continue in the third, just as revenue is widely expected to benefit from sales of OLED screens to Apple Inc.

The world’s biggest maker of memory chips, smartphones and TVs is set to smash its annual profit record after better-than-forecast performance in its mobile business lifted April-June profit slightly above its early-July guidance, analysts said.

“Looking ahead to the third quarter, the company expects favorable semiconductor conditions to continue,” Samsung said in a statement on Thursday. “Although overall earnings may slightly decline quarter-on-quarter as earnings weaken for the display panel and mobile businesses.”

Memory chip makers are enjoying a so-called super-cycle where increasing demand for more sophisticated devices, such as cloud-computing data center servers, requires higher numbers of more expensive chips. That has brought about a supply shortage which is pushing prices even higher and widening profit margins.

Chips were Samsung’s top earner in the three months through June, as more than tripled from the same period a year earlier to a record 8 trillion won ($7.20 billion). Continued demand for DRAM and NAND chips and supply constraints are likely to sustain profit margins for the foreseeable future, Samsung said.


Overall, Samsung in a filing said operating profit rose 72.7 percent to 14.1 trillion won in the second quarter, versus 14 trillion won estimated in July. Revenue rose 19.8 percent to 61 trillion won, also in line with its earlier estimate.

The logo of Samsung Electronics is seen at its office building in Seoul, South Korea, July 4, 2017. REUTERS/Kim Hong-Ji

It also announced its third share buyback of the year - 1.7 trillion won worth of common shares - as part of a planned annual total of 9.3 trillion won, and said it would cancel shares worth 2 trillion won.

Samsung’s share price closed down 0.1 percent, versus a 0.4 percent rise in the Kospi benchmark index.


In its mobile division, Asia’s third most-valuable company by market value reported 4.7 percent fall in profit, slightly milder than the decline forecast in early July.

Mobile chief Koh Dong-jin this month said cumulative sales of new flagship Galaxy S8 and S8+ smartphones, released April, were 15 percent higher than those of its predecessor.

However, the firm expects mobile earnings to dip in the third quarter as S8 sales trail off, mid- to low-tier models take up a larger share of total shipments, and marketing costs increase for the Galaxy Note 8, unveiled on Aug. 23 in New York.

“The mobile business might be slightly weaker in the third quarter because the second quarter was so strong,” said analyst Greg Roh at HMC Investment & Securities. “But the expected sales from OLED display supply to Apple is seen to be reflected in earnings starting in the third quarter.”


Apple is widely tipped to adopt Samsung’s organic light-emitting diode (OLED) display for the next iPhone expected in the second half of the year. Subsidiary Samsung Display Co Ltd has an over 90 percent market share in smartphone OLED screens.

However, price competition in liquid-crystal displays (LCD) used in low- and mid-tier handsets is expected to cut margins.

Samsung’s record earning come as the firm’s Vice Chairman Jay Y. Lee is in detention while on trial for his alleged role in a corruption scandal involving South Korea’s former president Park Geun-hye. He has denied wrongdoing.

The lower court ruling on the case is likely to come before Lee’s current detention period ends on Aug. 27, a Seoul court spokesman said.

Reporting by Joyce Lee; Editing by Christopher Cushing