Samsung predicts quarterly profit to peak in three years thanks to chip rush

Samsung Electronics estimated its second-quarter operating profit jumped 53% to its highest level in three years due to soaring chip prices, demand for electronics prolonging a global semiconductor shortage .

The world’s largest producer of memory chips, smartphones and electronic displays on Wednesday forecast operating profit to hit 12.5 billion won ($ 11 billion) between April and June, from 8.2 billion won ($ 11 billion) between April and June. won a year earlier. Analysts polled by Refinitiv expected operating profit to rise to 11.3 billion won. Samsung’s sales are estimated to have increased 18.9 percent to 63 billion won.

Strong earnings highlighted growing demand for chips, which depleted inventory and caused supply shortages in industries ranging from automobiles to consumer electronics. Analysts expected chip prices to continue rising in the second half of the year due to tight supply.

“Profits are expected to rise further in the third quarter, when Dram and Nand prices are expected to rise more than 10%,” said CW Chung, head of research at Nomura in Seoul. “The industry has just entered a supercycle which is expected to continue throughout next year.”

Samsung has dominated the production of Dram and Nand chips for decades. The former allows for short-term storage of graphics, mobile and server chips, while the latter allows files and data to be stored without power.

Dram chip prices jumped 27% in the second quarter from the previous three months, while Nand chip prices rose 8.6%, according to research vendor TrendForce.

“Dram’s upcycle cycle is likely to continue as Samsung is unlikely to significantly increase chip supply amid extremely low Dram stocks,” said Suh Seung-youn, analyst at Heungkuk Securities, in a statement. recent report.

Samsung’s profits in its foundry business also improved, with operations at its Austin, Texas plant returning to normal after suspensions caused by snowstorms in February. The South Korean company plans to invest $ 17 billion in a new US contract chip manufacturing plant.

Sales of rugged chips helped offset lower smartphone shipments as demand for Samsung’s latest flagship model launched in mid-January slowed. The company shipped around 59 million smartphones in the second quarter compared to 76 million in the first quarter, according to Shinyoung Investment & Securities.

Analysts said Samsung’s mobile shipments have been affected by declining demand from India and disrupted production at its Vietnamese factories, as Covid-19 outbreaks spread across both countries. Chip shortages have also affected smartphone production.

Samsung warned in April that the manufacturing of smartphones, televisions and home appliances had been disrupted by the chip tightening and that it was “rebalancing” production to minimize the impact.

Samsung shares fell 1.1% on Wednesday morning, after gaining around 50% in the past year. The company will report detailed second quarter results later this month.

The strong direction came as controversy mounted over whether Samsung frontman Lee Jae-yong should be released from prison. The billionaire heir to the group’s founding family is serving an 18-month sentence for corruption.

He will appear in court on Thursday for a separate hearing on allegations of accounting fraud and stock price manipulation related to his estate. He also faces charges of illegal use of propofol, a medical drug.

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