Business | Samsung back on song as chips drive best quarter in 3 years
A woman walks past the logo of Samsung Electronics at a flagship store in Seoul.
Photo: Jung Yeon-Je / AFP
A woman walks past the logo of Samsung Electronics at a flagship store in Seoul. Photo: Jung Yeon-Je / AFP

Samsung back on song as chips drive best quarter in 3 years

The Apple rival has shrugged last year's costly failure of its fire-prone Galaxy Note 7 device and a political scandal

April 7, 2017 11:40 AM (UTC+8)

Samsung Electronics on Friday forecast its best quarterly profit in more than three years, for the January-March period. The Korean giant outperformed expectations, putting it on track for record annual earnings on the back of a memory chip super-cycle.

The Apple rival has rapidly recovered from last year’s costly failure of its fire-prone Galaxy Note 7 device, despite a political scandal involving Vice Chairman Jay Y. Lee. He appeared in a Seoul court on Friday facing charges including bribing ousted president Park Geun-hye.

The global memory chip leader said its first-quarter operating profit was likely 9.9 trillion won (US$8.8 billion), compared with an average forecast of 9.4 trillion won from a Thomson Reuters survey of 18 analysts. Revenue rose 0.4 percent to 50 trillion won, just ahead of analysts’ forecasts.

“The semiconductor business was likely the main driver for earnings,” said Heungkuk Securities analyst Lee Min-hee, adding that sales of mid-to-low tier smartphones also helped the mobile business remain profitable.

Samsung shares touched a record high of 2.134 million won in late March on expectations of record annual profit in 2017, as the South Korean tech giant bounced back from the embarrassing withdrawal of its Note 7 devices due to combustible batteries.

Investors and analysts expect Samsung to report its best-ever quarterly profit in April-June, with the Galaxy S8 smartphone hitting the market on April 21 in Samsung’s first premium device launch since the Note 7’s withdrawal in October.

Some researchers forecast the S8, which sports the largest screen of any Samsung high-end smartphones to date, to set a new first-year sales record.

“Samsung will look to recover market share they lost last year and pump up volumes even if they have to spend more to do so,” IBK’s Kim said.

All this is happening amid management upheaval at South Korea’s biggest family-run conglomerate, with third-generation leader Lee embroiled in a scandal that has already led to Park’s removal from office for allegedly receiving bribes.

Lee was arrested in February over his alleged role in a corruption scandal. He denies any wrongdoing.

Chips sizzle

While Samsung will not provide detailed earnings results until the end of April, analysts tipped its chip division to earn a record 5.8 trillion won in January-March and propel the firm to its best overall operating profit since the third quarter of 2013.

Favorable memory market conditions will likely persist throughout 2017 due to diminishing production gains on investments and careful capacity management among chipmakers.

Growing demand for more firepower from devices such as smartphones and servers has also helped push up margins for Samsung and its rivals in recent quarters.

Samsung shares were down 1.2% in early Friday trade, underperforming a 0.2% fall for the broader market on profit-taking pressures.

The stock rose 14% in January-March, its strongest gain since the first quarter of 2012.

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