Samsung projects quarterly profit to hit three-year high on chip rush

Samsung Electronics estimated that its second-quarter operating profit jumped 53 per cent to its highest level in three years on surging chip prices, as demand for electronics prolonged a global semiconductor shortage.

The world’s largest producer of memory chips, smartphones and electronic displays projected on Wednesday that operating profit hit Won12.5tn ($11bn) between April and June, compared with Won8.2tn a year earlier. Analysts polled by Refinitiv had forecast operating profit would rise to Won11.3tn. Samsung’s sales were estimated to have grown 18.9 per cent to Won63tn.

The strong earnings highlighted the surging demand for chips, which has depleted inventories and caused supply shortages across industries from automobiles to consumer electronics. Analysts expected chip prices to continue to rise in the second half on tight supply.

“Earnings are likely to increase further in the third quarter when both Dram and Nand prices are likely to rise more than 10 per cent,” said CW Chung, head of research at Nomura in Seoul. “The industry just entered a supercycle that is likely to continue throughout next year.”

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

Prices of Dram chips jumped 27 per cent in the second quarter from the previous three-month period, while those of Nand chips gained 8.6 per cent, according to research provider TrendForce.

“The Dram upcycle will likely continue as Samsung is unlikely to sharply increase chip supply amid extremely low Dram inventories,” said Suh Seung-youn, an analyst at Heungkuk Securities, in a recent report.

Samsung’s profits at its foundry business also improved as operations at its plant in Austin, Texas returned to normal following snowstorm-induced suspensions in February. The South Korean company plans to invest $17bn in a new US plant for contract chip manufacturing.

Robust chip sales helped offset lower smartphone shipments as demand slowed for Samsung’s latest flagship model launched in mid-January. The company shipped about 59m smartphones in the second quarter compared with 76m in the first quarter, according to Shinyoung Investment & Securities.

Analysts said Samsung’s mobile shipments were hit by falling demand from India and disrupted production at its Vietnamese plants, as Covid-19 outbreaks spread in both countries. Chip shortages also hit smartphone production.

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

Shares of Samsung fell 1.1 per cent on Wednesday morning, having gained about 50 per cent over the past year. The company will announce detailed second-quarter results later this month.

The strong guidance came as controversy mounted over whether Samsung’s leader Lee Jae-yong should be released from prison. The billionaire heir of the group’s founding family is serving 18 months for bribery.

He will appear in court on Thursday for a separate hearing on alleged accounting fraud and stock price manipulation linked to his succession. He is also facing charges of illegal use of propofol, a medical drug.