Rising Chip Prices Fuel Samsung’s Best Quarterly Profit in 3 Years

Samsung Electronics Co Ltd on Friday flagged a 28% jump in its third-quarter operating profit to the highest in three years, driven by rising memory chip prices and display sales for new flagship smartphone launches.

The preliminary result was up 26% from the second quarter, although just below forecasts, while the market reaction was further muted as analysts pencilled in a flat or slightly lower result this quarter on an expected fall in memory chip prices.

The world’s largest memory chip and smartphone maker estimated its July-September profit at 15.8 trillion won ($13.3 billion), below a Refinitiv SmartEstimate of 16.1 trillion won. It is the highest quarterly profit since the third quarter of 2018.

“The mobile business’ operating margin might have been lower than the market expected,” said Park Sung-soon, analyst at Cape Investment & Securities. “We will have to see marketing costs and what the mix of products Samsung sold was like.”

Rising memory chip prices and shipments, plus a jump in profitability at Samsung’s chip contract manufacturing business, likely raised the chip division’s operating profit by about 79% from a year earlier, analysts said.

Semiconductors accounted for about half of Samsung’s operating profit in the first half of the year.

Samsung shares pared early gains to be up 0.4% in afternoon trade. It is due to announce detailed earnings later this month.

The stock has fallen about 12% so far this year versus a 3% rise in the wider market (.KS11), hurt by losses in September when U.S. peer Micron Technology Inc (MU.O)said its memory chip shipments would slip in the near term.

Analysts said prices for memory chips are expected to tumble this quarter as demand for personal computers drops amid an expected easing in global lockdowns that have helped power sales, while smartphone shipments may also decline.

A bright spot next year is expected to be Samsung’s chip contract manufacturing business, which on Thursday announced plans to start producing cutting-edge, 3-nanometre chip designs in the first half of 2022, as it races against industry leader Taiwan Semiconductor Manufacturing Co Ltd to preempt advanced technology and win clients.

For Samsung’s mobile business, estimated sales of 2 million new foldable smartphones within a month showed demand for its foldable handsets captured more of the mass market than last year, analysts said.

However, this was likely offset by marketing costs and higher component costs due to the global chip shortage.

Samsung’s display unit likely saw solid results as key customer Apple Inc ramped up orders before its late-September launch of the iPhone 13 series, analysts said.

Overall revenue likely rose about 9% from the same period a year earlier to a record 73 trillion won, Samsung said in a filing.

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