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Samsung’s Strong Earnings Hint at Recovery From Covid-19 Fallout

Samsung Electronics Co. reported better-than-expected profits after surging internet traffic propelled chip demand and gadget sales started recovering from the Covid-19 slump.
Bloomberg
By Bloomberg
7 Jul
Samsung Electronics Memory Modules As Company's Profit Drops Most in Four YearsSamsung Electronics Co. Double-Data-Rate (DDR) memory modules are arranged for a photograph in Seoul, South Korea, on Friday, April 5, 2019. Samsung reported its worst operating-profit drop in more than four years, buffeted by falling memory-chip prices and slowing smartphone sales. Photographer: SeongJoon Cho/Bloomberg

The world’s largest manufacturer of memory chips and smartphones posted operating profit of 8.1 trillion won ($6.8 billion) in the three months ended June, beating the 6.2 trillion won average of estimates. Sales for the quarter were 52 trillion won, according to preliminary results released Tuesday. The company didn’t provide net income or break out divisional performance, which it will do later this month when it releases final results.

Inside Samsung Electronics Store Ahead of 2nd Quarter Preliminary Figures
Customers try out Samsung Electronics Co. Galaxy Tab tablet devices at the company's Digital Plaza store in Seoul, South Korea, on July 5.

The estimates include a one-time gain related to the display business. While the company didn’t offer details, some analysts estimated it could have recorded a gain of as much as 1 trillion won in compensation from Apple Inc. for fewer-than-promised display orders.

Samsung shares were little changed in early trading in Seoul on Tuesday.

The South Korean company’s strong performance suggests the tech industry is climbing back from the Covid-19 pandemic, which has hammered the global economy but also accelerated a shift toward online activity such as video conferencing, web-based education and entertainment streaming.

Memory chip prices have risen on strong server demand

“Because of this work-from-home situation, there’s been strong demand for a couple of its products,” said Kiranjeet Kaur, a research manager at IDC. “The demand for DRAM has seen a spike in Q2 due to demand in server and data centers.”

​Although Samsung had warned of a profit slide in the second quarter due to plant and store closings, it managed to mitigate the fallout by cutting marketing expenses and selling TVs and monitors to people spending more time working and playing at home.

Samsung’s mobile and consumer electronics businesses took a hit from store and plant closings since mid-March, but they’ve begun reopening across North America and Europe from June. Hana Financial Investment forecasts Samsung will report around 5.5 million smartphone shipments for the second quarter when it releases its full earnings breakdown.

“Earnings remained brisk despite the weakness of offline-dependent smartphone sales,” Greg Roh, senior vice president at HMC Securities, said ahead of the announcement. “Going forward, the market will have more confidence in Samsung’s ability to stave off the next macro crisis.”

Read more: Samsung Billionaire’s Fate at Risk Despite Role in Virus Fight

While Samsung’s business appears to be weathering the virus storm, the company has another significant challenge to deal with in determining the fate of its de-facto leader, Jay Y. Lee. The company’s vice chairman is facing allegations of corruption in Korea that could lead to prosecution and a return to prison.

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