Samsung’s profit exceeds expectation thanks to memory chips

SEOUL, Korea, Republic Of — Samsung Electronics Co. reported Thursday better-than-expected quarterly financial results as global data centres continued to fuel robust demand for its mainstay memory chips that posted another record-high quarterly profit.

The South Korean tech giant said it recorded 11.7 trillion won ($10.8 billion) for its January-March net income, up 52 per cent from 7.7 trillion won a year earlier.

The result slightly exceeded expectations of 11.3 trillion won according to financial data provider FactSet.

Sales rose 20 per cent to 60.6 trillion won ($56.1 billion) while operating income surged 58 per cent to 15.6 trillion won ($14.5 billion) during the period.

The first quarter sees a typically low demand for consumer electronics products but Samsung has been immune to seasonally shifting demand in the consumer electronics market thanks to what has become a perennially lucrative business of memory chips. A lion’s share of its latest quarterly operating income was generated by the semiconductor division.

More than 70 per cent its quarterly operating income, or 11.55 trillion won ($10.7 billion), was posted by the semiconductor business on the division’s revenue of just 20.78 trillion won ($19.25 billion), a profit margin almost unheard of in the manufacturing industry.

Samsung said its semiconductor division benefited from strong demand for server chips from global data centre operators and chips that handle graphics and crypto-currency mining cards.

Memory chips used to be a cutthroat market with multiple players that cycled between being deep in the red or in the black depending on global supply and demand. An industry restructuring in the last couple of years left only a handful of global companies and tight supplies. Samsung and a few other remaining memory chipmakers benefited from hefty investments by global internet companies to expand global data centres and higher demand for chips that can handle more complex programs in mobile handsets.

Another business that contributed to Samsung’s latest earnings was its mobile phone division that posted 3.77 trillion won ($3.49 billion) in quarterly operating income. Samsung said while an early release of its flagship Galaxy S9 smartphone this spring propped up its profit, sales of the Galaxy S8 smartphone released last year continued to stay strong, indicating that consumers are not enthusiastic about upgrading their phones to the latest products and don’t mind getting phones at least a year old.

Those two divisions helped Samsung offset weak performance in the display business, which counts Apple Inc. among its clients, and its home appliance division that saw seasonally low demand for television sets. The display division saw a lower profit in both advanced panels called OLED and LCD products.

Going forward, Samsung forecast that that memory chip business will likely stay strong, increasing overall earnings would be a challenge due to the display business and lower profit in the mobile business.