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Published: 17:10, July 07, 2022 | Updated: 18:20, July 07, 2022
Chips drive highest Samsung Q2 profit since '18, demand cooling
By Reuters
Published:17:10, July 07, 2022 Updated:18:20, July 07, 2022 By Reuters

People pass by Samsung Electronics' shop in Seoul, South Korea, Wednesday, April 28, 2021. (AHN YOUNG-JOON / AP)

SEOUL - South Korea's Samsung Electronics Co Ltd turned in its best April-June profit since 2018 on Thursday, underpinned by strong sales of memory chips to server customers even as demand from inflation-hit smartphone makers cools.

Shares of the world's largest memory-chip and smartphone maker closed up 3.2 percent after preliminary results were announced, versus a 1.8 percent rise in the wider market.

Samsung posted an operating profit of 14 trillion won ($10.7 billion), up 11 percent from 12.57 trillion won a year earlier, just shy of a 14.45 trillion won SmartEstimate from Refinitiv

Shares of other chipmakers, including rival SK Hynix and the world's biggest foundry TSMC, also rose as analysts said tight supply of certain chips could help offset slower demand that is driving down memory chip prices.

Samsung posted an operating profit of 14 trillion won ($10.7 billion), up 11 percent from 12.57 trillion won a year earlier, just shy of a 14.45 trillion won SmartEstimate from Refinitiv.

Revenue for the second quarter rose 21 percent to 77 trillion won, in line with market estimates.

The strong quarter for Samsung comes at a time when other chipmakers have warned of a looming chip glut at customers who stocked up during the pandemic to meet higher demand from people working from home.

ALSO READ: Samsung to invest $356b over five years in strategic sectors

Chipmakers including Micron and Advanced Micro Devices have also recently signaled waning demand as red-hot inflation squeezes spending.

Samsung Electronics' microchips are displayed at its store in Seoul, South Korea on April 30, 2019. (AHN YOUNG-JOON / AP)

Samsung's profits have been shielded as large US tech firms such as Amazon, Microsoft, Alphabet's Google and Meta that use a lot of data center services kept buying chips to meet cloud demand, analysts said

"Memory chipmakers are expected to build inventory this year, keeping supply conservative, and hike shipments when prices rebound and demand recovers next year", said Park Sung-soon, an analyst at Cape Investment & Securities.

Prices of specific DRAM chips, used in devices and servers, fell about 12 percent last month from a year ago, according to data provider TrendForce. Prices of NAND Flash chips, used for data storage, are also projected to fall as much as 5 percent in the July-September period from the previous quarter.

Smartphone demand weakens

Rising inflation, concerns about a downturn in major markets and the conflict in Ukraine have resulted in slowing smartphone sales, leaving server chip demand as the only bright spot, analysts said.

ALSO READ: Samsung Electronics' revenue hits record high in Q1

Samsung's profits have been shielded as large US tech firms such as Amazon, Microsoft, Alphabet's Google and Meta that use a lot of data center services kept buying chips to meet cloud demand, they added.

Visitors try out Samsung Electronics Galaxy smartphones during the 2022 World IT show at the Convention and Exhibition center in Seoul, South Korea on April 20, 2022. (AHN YOUNG-JOON / AP)

Estimated smartphone shipments by Samsung's mobile business in the second quarter were about 62-64 million, about 5-8 percent lower than a March estimate, Counterpoint Research said, as inflation hit smartphone demand

Making a case for strong server demand, contract electronics supplier and Apple iPhone maker Foxconn on Monday raised its full-year outlook and said it was optimistic about the third quarter. 

A strong dollar, which hit a 20-year high, may have also aided Samsung's chip profits in the second quarter.

Samsung's chip sales are made mainly in dollars, while it reports its profit in Korean won, so a firm greenback translates to higher chip earnings.

Estimated smartphone shipments by Samsung's mobile business in the second quarter were about 62-64 million, about 5-8 percent lower than a March estimate, Counterpoint Research said, as inflation hit smartphone demand.

Samsung shipped 74 million smartphones in the first quarter.

READ MORE: Samsung Electronics' earnings log double-digit growth in 2021

"This trend is the same for major global smartphone makers, although there is variance to some degree ... In particular, the hit to the demand for low- and mid-end smartphones seems more severe," said Jene Park, Senior analyst at Counterpoint.

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