Samsung rides surging chip demand to record quarterly profit

The logo of Samsung Electronics is seen in Seoul.
The logo of Samsung Electronics is seen in Seoul.PHOTO: REUTERS

SEOUL (BLOOMBERG) - Samsung Electronics topped analyst estimates with its best-ever operating profit as global demand for semiconductors remained strong and the new Galaxy S8 flagship smartphone won over customers.

Operating income rose to 14 trillion won (S$16.74 billion) in the three months ended June, the company said in preliminary results released on Friday (July 7). That compares with the 13 trillion-won average of analysts' estimates compiled by Bloomberg. Revenue rose to 60 trillion won, compared with the 58.4 trillion won projected.

The world's largest maker of phones and memory chips is counting on the Galaxy S8 to repair its reputation and regain ground lost to Apple Inc. and Chinese rivals following the demise of the Note7 device last year. Samsung's result, which include the first full quarter of sales form the marquee smartphone, shows its continuing to benefit from higher prices for the memory chips that go into mobiles and computers.

"Rivals have failed to capitalize on the Note7 debacle while Samsung has been raking in profits from semiconductors and displays," Lee Seung-woo, an analyst at Eugene Investment and Securities, said before the results. "The favorable market in semiconductors will probably continue for some time."

Samsung won't provide net income or break out divisional performance until it releases final results later this month. It probably earned 7.5 trillion won in chips, 3.8 trillion won in mobile devices and 1.5 trillion won in displays such as organic light-emitting diode screens, Lee said.

The Korean electronics giant posted its best operating profit in the third quarter of 2013 when it earned 10.2 trillion won. While displays and semiconductors have picked up the slack since the Note7's recall, the company still gets a significant portion of revenue from smartphones. It hasn't divulged Galaxy S8 numbers but reviews for the device, which features a bezel-less display and voice-enabled digital assistant, have been favorable. It may also have benefited from the usual lull before Apple releases a new iPhone, typically late in the year.

Samsung's shares closed on Thursday at 2.403 million won and have climbed 33 per cent this year.

DDR3 4-gigabyte dynamic random access memory chips averaged US$2.97 in the second quarter, compared with US$1.58 a year earlier, according to data from InSpectrum Tech Inc.

Samsung may displace Intel as the world's biggest chipmaker by sales this year, according to Lee. It reclaimed its position as the world's biggest smartphone maker in the first quarter, after losing the lead due to the Note7 recall. The company is now counting on the S8 to threaten Apple and widen its lead over up-and-coming rivals such as Huawei Technologies and Oppo.

The company has seen its reputation tarred with the detention and trial of de-facto chief Jay Y Lee, on charges he bribed a presidential confidante to secure support for a 2015 merger that cemented his control. The 49-year-old vice chairman denies the charges.