Samsung Electronics Co. reported preliminary first-quarter earnings that beat analysts’ estimates on robust demand for new models of smartphones and memory chips for servers.
Operating profit rose 50% to 14.1 trillion won ($11.6 billion) in the three months to March, South Korea’s largest company said in a statement on Thursday. Analysts estimated an average of 13.4 trillion won.
Revenue rose 18% to 77 trillion won, also higher than expected. Samsung will report the division’s net income and performance when it reports full results on April 28.
Stocks opened slightly lower in Seoul amid a broader sell-off Remarks by the US Federal Reserve.
Samsung is the first major tech company to report first quarter figures, a period punctuated by the war in Ukraine, sanctions on Russia and resurgent Covid-19 infections in China.
Still, data center expansions and the global shift to 5G communications continue to drive demand for semiconductors, which account for a large portion of the conglomerate’s profits.
“We expect solid earnings growth in 2022 on the back of a healthy earnings recovery in semiconductors and displays in the second half of 2022,” said Peter Lee, an analyst at Citigroup, in a note ahead of the results.
“In particular, we expect Samsung’s memory business to benefit from memory pricing strength throughout the second half of 2022.”
As for smartphones, another growth pillar for Samsung, cumulative sales of the Galaxy S22 series in South Korea this week are expected to surpass 1 million units, the company said.
The new flagship range, which debuted in February, is selling 20% faster than the previous S21 series, according to the Suwon-based company.
According to research firm Counterpoint, the S22 outsold the S21 in the US by 60% in its first three weeks on the market.
Shares of Samsung were down about 12.5% so far this year through Wednesday, with the broader chip sector underperforming as rising economic risks clouded the outlook for consumer demand.
Soaring oil prices in the wake of Russia’s invasion of Ukraine, combined with inflation and interest rate hikes, have fueled concerns about dwindling disposable income and discretionary spending.
Samsung, which makes more than a third of the world’s DRAM and NAND memory chips, is not only affected by semiconductor industry cycles, but also by consumer demand as it makes both the end products and the chips for these devices.
The memory market exits the downturn earlier than expected, with prices falling only slightly in the first quarter.
DRAM prices fell 4%, less than the 6% forecast, while NAND fell 3%, according to Citigroup.
NAND prices are expected to rise 5% to 10% in the current quarter as supply tightens following a contamination issue at Kioxia Holdings Corp. and Western Digital Corp.’s joint venture factories. has tightened in Japan, forecast research firm TrendForce.
The cost of producing chips has also increased as chipmakers need to diversify their sources of gases and minerals, which used to be imported mainly from Ukraine.
China’s lockdown policies are causing logistical disruptions that can affect component sourcing and delay production of devices that use Samsung memory.
Analysts have also cited Samsung’s relatively slow improvement in manufacturing yields in advanced nodes for contract-based chip manufacturing as a downside risk to the stock.
What Bloomberg Intelligence says
China’s smartphone and PC shipments may be disrupted by Covid-19 outbreaks in business hub Shanghai and resulting logistical headwinds. The market share of 5G handsets in the country could remain around 80% in the coming months, but further upside could be limited as rising costs could hamper entry-level adoption.