Samsung beats first-quarter estimates, despite virus-driven retail slump
In this article (5)
Samsung Electronics has delivered better-than-expected first-quarter earnings as robust demand for chips apparently offset a slump in smartphone and home appliance sales amid the novel coronavirus pandemic.
But analysts warned that the company may feel the pinch of the COVID-19 outbreak during the current quarter.
The South Korean tech giant put its March-quarter operating profit at 6.4 trillion won (US$5.2 billion), up 2.73 percent from 6.23 trillion won a year ago.
It beat the market consensus of 6.19 trillion won in operating profit in the survey conducted by Yonhap Infomax, the financial arm of Yonhap News Agency, on 20 Korean brokerage houses.
Samsung recorded an 11.6-per-cent operating margin in the first quarter, the lowest since the third quarter of 2016.
Samsung, the world’s leading memory chip and smartphone vendor, did not break down performances of its respective business divisions, saying it will announce the detailed earnings later this month.
Analysts in Seoul said Samsung’s semiconductor business may have helped the company stay afloat amid the novel coronavirus crisis on the back of increased demand for server chips for data centers and a steady rise in memory-chip prices.
“Increased non-face-to-face activities prompted by the COVID-19 outbreak has led to a surge in data traffic and server expansion,” Kim Dong-won, an analyst at KB Securities, said.
“It pushed up the average selling prices of memory chips.”
However, smartphone and home-appliance sales may have slumped in the face of weak demand amid the COVID-19 outbreak around the globe, the analysts said.
“Increased non-face-to-face activities prompted by the COVID-19 outbreak has led to a surge in data traffic and server expansion,”
Samsung had to temporarily shut down about one-fourth of its global manufacturing bases, including those in India, Brazil and Russia, amid the spread of COVID-19. Last month, it even shifted some of its premium smartphone production from South Korea to Vietnam.
Samsung also had to close its home-appliance stores in North America and other countries and asked consumers to buy products online.
Analysts said Samsung is expected to have shipped only 60 million smartphones in the first quarter, down from 72 million units a year ago, despite the launch of its new flagship smartphone line, the Galaxy S20, last month, as COVID-19 limited marketing activities.
Postponement of major sporting events, such as the Tokyo Summer Olympics and the UEFA Euro Championship, also dealt a hard blow to Samsung’s TV sales, they added.
Analysts predicted Samsung’s mobile and consumer-electronics units to have posted an operating profit of 2.4 trillion won and 400 billion won, respectively, in the first quarter.
In particular, Samsung’s display business may have suffered an operating loss in the January-March period due to the double whammy of projected slumps in mobile and TV sales, according to analysts.
Analysts expected Samsung’s mobile and TV businesses to take a heavier toll in the second quarter as the pandemic is likely to further dampen demand for mobile handsets and home appliances in advanced markets like North America and Europe.
“Samsung’s smartphone business suffered relatively little impact from COVID-19 in the first quarter as it does not rely much on the Chinese market,” Yoo Jong-woo, an analyst at Korea Investment & Securities, said.
“The company started to see its smartphone shipments taking COVID-19 impact from mid-March as it spread across the US and Europe.”
Questions & Answers
Q.Which specific business area most likely helped Samsung exceed its first-quarter earnings estimates?
Which specific business area most likely helped Samsung exceed its first-quarter earnings estimates?
The semiconductor business probably helped due to increased demand for server chips for data centres and a steady rise in memory-chip prices. This was driven by a surge in data traffic from more non-face-to-face activities.
Q.What impact did the global pandemic have on Samsung's manufacturing and retail operations?
What impact did the global pandemic have on Samsung's manufacturing and retail operations?
Samsung temporarily closed about a quarter of its global manufacturing bases, including those in India, Brazil, and Russia. It also shut home-appliance stores in North America and other countries, directing consumers to online purchases instead.
Q.How did the launch of Samsung's new flagship smartphone perform in the first quarter?
How did the launch of Samsung's new flagship smartphone perform in the first quarter?
Despite the launch of the Galaxy S20, Samsung is expected to have shipped only 60 million smartphones in the first quarter, down from 72 million units a year ago. COVID-19 limited marketing activities, affecting sales.
Q.Why did Samsung's smartphone business initially experience relatively little impact from COVID-19?
Why did Samsung's smartphone business initially experience relatively little impact from COVID-19?
The smartphone business initially suffered relatively little impact because it does not rely heavily on the Chinese market. Shipments started taking a hit from mid-March as the virus spread across the US and Europe.