Samsung's Q2 earnings outstrip market predictions

Samsung Electronics on Tuesday announced its earnings guidance for the second quarter, which hinted at an earnings surprise despite the impact of the COVID-19 pandemic on major products.

The company forecast it would post 8.1 trillion won ($6.8 billion) in operating profit for the April-June period, up 22.7 percent on-year and 25.6 percent rise from the previous quarter.

But the second-quarter revenue is estimated at 52 trillion won, declining 7.36 percent on-year and 6.02 percent on-quarter, due to decreased sales of consumer products such as smartphones and home electronics.

Market observers assume that the semiconductor business has performed far better than expected during the COVID-19 crisis, while the mobile and electronics units have also fared well.

By business, the chipmaking unit is expected to have earned 5.4 trillion won, up about 37 percent from the first quarter.

The chip manufacturer’s quarterly profit is attributed to the strong demand for memory chips from sever and PC makers amid growing non-contact services.

DRAM prices also supported the company’s performance as the figures have continued rising for the past five consecutive months.

The smartphone and consumer electronics businesses are predicted to have posted 1.8 trillion won and 700 billion won in operating profit, respectively.

“It turns out that shipments of smartphones and TVs in June exceeded forecasts by market watchers, while their profitability seems to have improved due to reduced marketing costs,” said Lee Su-bin, an analyst at Daishin Securities.

Shipments of the consumer products expanded as large-scale retailers like Best Buy in the United States resumed operations last month, leading to larger-than-expected profits for Samsung.

Drastic cuts in marketing costs amid COVID-19 lockdowns in the second quarter have also led to the highest operating income ratio since the fourth quarter of 2018, which is estimated to be 15.6 percent.

However, the chipmaker’s second-quarter profit includes some 1.1 trillion won gain from a US-based customer of Samsung Display -- the semiconductor unit’s subsidiary.

“Apple is presumed to have compensated Samsung Display for the contracted volume of organic light-emitting diode panels for smartphones, which it couldn’t buy due to low sales,” said a market observer.

Forecasts for the third quarter are quite positive, but there exist mixed views due to the resurfacing COVID-19 risks worldwide.

“The second half of the year is usually a high season for mobile and consumer electronics, so the overall performance would be dependent on smartphone shipments,” Lee from Daishin said.

Some have released third-quarter forecasts that estimate 60 trillion won in sales and 9 trillion won in operating profit.

By Song Su-hyun (song@heraldcorp.com)