Samsung Electronics leverages pandemic-driven chip demand to report quarterly profit spikes

Samsung Electronics leverages pandemic-driven chip demand to report quarterly profit spikes

Samsung Electronics, the world’s biggest maker of smartphones and memory chips, reported fourth-quarter net profits up more than a quarter from a year earlier as work-from-home boosted by the coronavirus boosted demand for devices powered by its chips.

But the numbers were below market expectations according to Bloomberg News, and the company warned of lingering uncertainties about the pandemic and lower earnings in the first quarter of 2021 due to falling prices.

Samsung Electronics is the main subsidiary of the giant Samsung group, by far the largest of the family empires known as chaebols that dominate business in South Korea, the 12th largest economy in the world.

The conglomerate is crucial to the economic health of the South – its total turnover is equivalent to one-fifth of the country’s gross domestic product.

Samsung Electronics said profits rose by 26.4 percent from October to December year-on-year to KRW 6.61 trillion (about INR 43,300 crores), led by memory and display chip businesses.

“While challenges from the COVID-19 pandemic continue, company-wide efforts to ensure a stable supply of products and services globally helped Samsung’s fourth quarter results,” the company said in an earnings report.

The coronavirus has wreaked havoc on the world economy, with lockdowns and travel bans imposed around the world for many months.

But the pandemic – which has killed more than two million people worldwide – has also seen many tech companies rise, including Samsung.

“It is true that Samsung’s sales have increased year on year due to the spread of the so-called ‘new normal’, which has led to an increase in demand for electronics,” said Jene Park, an analyst at Counterpoint Research.

Operating profit increased by 26.4% to KRW 9.05 trillion (approximately Rs. 59,300 crore), while sales also increased by 2.8% to KRW 61.55 trillion (approximately Rs. 4,03,170 crore).

Even so, Samsung noted that profits declined from the previous quarter due to weaker memory prices and sluggish sales of consumer products, as well as higher marketing costs and the appreciation of the Korean won.

The trend is likely to continue, he said, with profitability in the memory business hit by momentum gained “and costs associated with new production lines, despite solid demand for mobile products and data centers.”

It expected a recovery in overall global demand in 2021, but warned that “uncertainties persist over the possibility of recurrent waves of COVID-19”.

Full year net profit jumped by 21.5% to KRW 26.41 trillion (approximately Rs. 1,73,000 crore) on sales of KRW 236.81 trillion (approximately Rs. 15,51,630 crore), an increase of 2.8%.

Samsung Electronics shares fell 1.64 percent in early trading on Thursday.

boss arrested

The global chip-making industry is expected to see record revenue this year as the economics of staying at home persist because of the pandemic, according to Taipei-based market tracker TrendForce.

Samsung has aggressively stepped up its investments in semiconductors in recent years.

As its latest investment, the tech giant is considering spending up to $17 billion (about INR 1,24,260 crore) to build a chip factory in Arizona, Texas or New York, the Wall Street Journal reported last week.

If confirmed, it would be Samsung’s biggest investment in the absence of its de facto leader, Lee Jae-yong.

Lee was sentenced last week to two-and-a-half years in prison in a new trial over a wide-ranging corruption scandal that toppled former president Park Geun-hye.

That decision cast more uncertainty on Samsung after the funeral of late chairman Lee Kun-hee, who built Samsung Electronics into a global powerhouse, in October.

Experts say a leadership vacuum could hurt the company’s decision-making about future large-scale investments that were key to its rise.

Kim Dae-jong, a business professor at Sejong University, said: “Samsung is a very important company for South Korea and the arrest of its leader is disadvantageous.”

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