A Samsung Electronics building in Seoul, South Korea. Picture: REUTERS
A Samsung Electronics building in Seoul, South Korea. Picture: REUTERS

Seoul  —  Samsung Electronics’s quarterly earnings beat estimates on Wednesday after memory chip prices began to climb out of a persistent downturn.

The world’s largest memory chipmaker reported a 34% fall in operating income to 7.1-trillion won ($6.1bn) in the three months ending December, according to preliminary results released on Wednesday by the Suwon, South Korea-based company. That compares with the 6.49-trillion won average of analysts’ estimates.

Company shares rose as much as 1.4% in early trading following the guidance.

Trade tensions

Global chip prices — the biggest determinant of Samsung’s bottom line — have shown signs of escaping a protracted slump, helped along by the easing of trade tensions between the US and China and boosted by orders from data centre operators.

Demand for DRAM chips used in smartphones and servers is projected to rise in line with technology advances that require more and better silicon.

“The fundamental of Samsung’s chip business is great,” said Jeon Kyung-dae, chief investment officer for equities at Macquarie Investment Management Korea. “Memory chip prices already turned about in the fourth quarter and the recovery has started earlier than the market’s expectation. Samsung is expected to ramp up capital expenditure in its memory business this year.”

Wall Street has been predicting a recovery in semiconductor demand — hammered in 2019 by flagging mobile gadget sales and a slowing expansion in cloud computing — and expects the market for computer and smartphone components will return to growth in the second half of 2020.

Micron Technology told investors in December the worst was over for the memory-chip industry.

Bloomberg Intelligence analyst Anthea Lai Sadi: “NAND prices improved sequentially and DRAM’s descent slowed, even though the fourth quarter is a typically slow season. A strong demand comeback from server customers may restore Samsung’s inventory back to normal levels earlier than expected in 2020.”

Sales for the fiscal fourth quarter were 59-trillion won, falling shy of the 60.9-trillion won consensus projection. Samsung did not provide net income or break out divisional performance, which it will do later in January when it releases final results.

Contract prices for 32GB DRAM server modules fell about 5.3% in the December quarter, narrower than the 14% slide of the September quarter, according to InSpectrum Tech. Prices for 128GB MLC NAND flash memory chips held steady in the final three months of 2019.

Samsung shares soared 44% in 2019 on expectations for an uptrend in demand in 2020.

The growing shift towards 5G wireless technology and cloud computing will drive chip business growth, said CW Chung, head of Korea equity research for Nomura International in Seoul.

The company is spending more on the development of flexible organic light-emitting diode panels for smartphones, hoping to maintain its lead in the mobile display market. But its older LCD business shut some facilities after panel prices collapsed in the face of competition from Chinese suppliers such as BOE Technology Group.

“The division is likely to face that cost pressure in 2020 as well, but its overall operating income is poised to increase, driven by higher utilisation rates for flexible OLED,” Daishin Securities  analyst Lee Su-bin said in a note on December 23.

In mobile devices, Samsung is expected to report lower-than-expected shipments of smartphones for the quarter but its average selling price probably increased thanks to the Galaxy Fold, a $1,980 Android device that opens up like a book.

Samsung is expected to unveil on February 11 in San Francisco a second foldable device that folds into a square. The company’s mainstream flagship device — whose name is rumoured to be the Galaxy S20, a change in naming scheme — is also likely to be unveiled at that event.

Samsung said its devices accounted for 54% of the global 5G smartphone market as of November 2019, after it shipped more than 6.7-million Galaxy 5G smartphones in 2019.


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