Samsung Sees Record Quarter But Predicts End Of Memory Chip Boom

Samsung reported record profits for the third quarter on strong memory chip sales, but warned that the sector’s boom is set to end.

From July to September Samsung Electronics saw an operating profit of 17.6 trillion won (£12.2bn), up 21 percent from the same quarter last year.

Net profits for the quarter rose to 13.1tn won, largely driven by Samsung’s semiconductor unit, the largest in the world after surpassing Intel earlier this year.

The boom in memory prices offset a slowdown in smartphone sales, which saw operating profits in the company’s phone division down by 33 percent from the same quarter last year to 2.2tn won.

Profit squeeze

The unit’s customarily large profit margins are being squeezed by pressure from Apple on the high end and Chinese rivals such as Xiaomi for mid-range and cheaper devices.

Sales for mid-level and low-end smartphone price segments saw sales drops during the quarter due to this competition, Samsung said.

The company also disclosed that it expects to see earnings decline over the next two quarters due to an expected drop in chip sales after years of strong expansion in the sector.

It expects to see earnings decline in the fourth quarter of 2018 as chip sales slow and as it increases marketing expenditures during the run-up to Christmas.

But it said it sees conditions improving after the first quarter, including in the memory market.

“Looking further ahead to 2019, earnings are forecast to be weak for the first quarter due to seasonality, but then strengthen as business conditions, particularly in the memory market, improve,” Samsung stated.

Cloud demand

Prices for some memory chips have already fallen to more than two-year lows, while Samsung’s competitors, including Hynix, are readying new production lines for 2019, adding to oversupply in the market.

But Samsung said it sees strong chip demand continuing in areas such as servers due to the continued expansion of cloud computing.

Samsung is one of the world’s three biggest smartphone makers, along with Apple and China’s Huawei, and as such is amongst those affected by the flattening of the smartphone market first observed at the beginning of this year.

Analysts said the fourth quarter of 2017 saw the first-ever year-on-year decline in smartphone sales.