Samsung Warns Of Downturn After Massive Jump In Sales
Samsung Electronics who have spent the last 12 months expanding their Australian business into value markets while preserving their premium product offering spanning TV’s smartphones and appliances has reported strong sales driven by brands such as Apple buying their components.
Due to healthy mobile and memory chips sales revenues have surged however the South Korean Company is forecasting a bumpy road ahead.
Yesterday the Company announced a major deal with Bunnings with the hardware retailer set to sell Samsung appliances.
According to Samsung, its mobile business is up 51 percent over the same period last year (PDF) this contrasts sharply from the dip it experienced in 2019 due in part to the launch of value models such as their A Series and their Galaxy S20 Fan Edition. At the top end, the Galaxy Note 20 and Z Fold 2 as well as demand for “mainstream” premium models are also contributing to their success.
Samsung also saw growth in its display business (which accounts for screens sold to others, like the OLED displays in Apple’s iPhone 12 line-up, and memory chips, which go in phones, servers and help power the graphics cards for new GPUs and game consoles. Overall, its operating profit grew to 9.27 trillion won ($8.2 billion), up 52 percent from Q3 2019.
The Company that is still mourning the death of their founding Chairman, warned that profit and revenue will dip in the fourth quarter as server chip demand undergoes a post-coronavirus correction.
The South Korean electronics giant said Chinese smartphone makers were the main buyers of its mobile chips, a trend it expects to continue despite the U.S. crackdown on Huawei Technologies, a key Samsung customer.
“We saw upside in demand for mobile memory chips from Chinese companies in the third quarter. We expect demand for mobile DRAM and NAND chips will continue to be robust in the fourth quarter,” said Han Jin-man, a vice president of the company’s memory chip unit, in an earnings conference call.
The announcement comes as the U.S. government is requiring global tech companies to obtain a license if they use any American technology to supply Huawei. Samsung said that it applied for a permit but has not yet received one.
Samsung is the world’s largest memory chipmaker, supplying DRAM and NAND chips for global smartphone makers, including many in China. The company did not mention any Chinese companies by name, but analysts say they are Vivo, Oppo and Xiaomi.
Thanks partly to the rising demand for the mobile memory chips, the company’s operating profit jumped 58.8% to 12.4 trillion won ($11 billion) in the third quarter from a year ago, marking the biggest quarterly profit in two years. Its sales rose 8% to 66.9 trillion won during the same period.
Operating profit in semiconductors soared 81.6% on the year to 5.5 trillion won in the July-September period, leading the better-than-expected performance. Samsung’s IT & mobile communications unit, meanwhile, posted 4.5 trillion won in operating profit, up 52.7% from the previous year.
But the company forecast that both profit and revenue will decline in the fourth quarter as server chip customers adjust their stocks. The widespread adoption of telework and remote learning due to the coronavirus pandemic fuelled server demand earlier in the year.
Profit in the smartphone business is also expected to drop for the three months through December due to tough competition and rising marketing costs for the Black Friday and Christmas seasons.
Looking further ahead, however, Samsung forecast that its earnings will rebound next year as demand for chips and 5G smartphones will increase. Apple released its first 5G smartphones, the iPhone 12 line-up, earlier this month, paving the way for an increase of chip and handset sales using the technology. Apple is a key Samsung customer, buying chips and display panels for its smartphones.
The new stay-at-home economy also boosted sales larger TVs, giving a boost to Samsung’s display panel business. The company said it could extend production of liquid crystal display, or LCD, panels as demand for larger TVs is expected to continue growing.
“We consider extending production of LCD panels as many customers ask for large-size LCD panels,” said Choi Kwon-young, an executive at Samsung Display, a subsidiary of Samsung Electronics.
The company initially planned to pull out of the LCD market this year due to challenges from Chinese makers, focusing on premium organic light-emitting diode, or OLED, panels, and quantum dot displays.