Samsung warns of weak outlook after posting strong Q3 earnings

A visitor collecting a Samsung Galaxy Note 20 smartphone during a driving-through event for purchasers in Seoul on Aug 13. Sales of Samsung smartphones jumped nearly 50 per cent during the September quarter as the roll-out of its latest Galaxy Note s
A visitor collecting a Samsung Galaxy Note 20 smartphone during a driving-through event for purchasers in Seoul on Aug 13. Sales of Samsung smartphones jumped nearly 50 per cent during the September quarter as the roll-out of its latest Galaxy Note series and a new foldable device reignited demand for premium handsets that had flagged during the coronavirus pandemic.PHOTO: REUTERS

SEOUL • Samsung Electronics warned yesterday that earnings in the current quarter will decline, saying the strong growth in its mobile and memory business that helped third-quarter profit beat forecasts will ease amid intensifying competition and weakening demand.

The world's largest maker of memory chips and personal electronics said net income rose a better-than-expected 52 per cent to 9.27 trillion won (S$11.2 billion) in the three months ended last month, beating the 7.54 trillion won average of estimates.

It foresees capital spending of about 35.2 trillion won this year because of a migration to more advanced chip processes and a build-out of its contract chipmaking business.

The South Korean technology giant's tepid outlook may fuel concern that the remarkable tech sector rally during the pandemic may have run its course.

The firm joined fellow chipmakers Micron Technology and Intel in warning that demand from server customers will weaken amid an inventory correction. Samsung also forecast rising competition in mobile phones and consumer electronics and said it will have to boost spending on marketing.

"Concerns over disruptions in supply chain drove chip demand from cloud operators early this year due to the Covid-19 pandemic, but the demand cooled down as inventories kept rising," said Cape Investment & Securities analyst Park Sung-soon. "We are seeing a correction in the memory chip market in Q4 but memory chip prices are expected to rise next year when hyperscalers start expanding their investment in servers."

Samsung shares have surged nearly 40 per cent from their March lows. The stock slipped as much as 2.4 per cent yesterday after the earnings report, the most in more than a month.

Sales of Samsung smartphones jumped nearly 50 per cent during the September quarter as the roll-out of its latest Galaxy Note series and a new foldable device reignited demand for premium handsets that had flagged during the coronavirus pandemic.

Phone shipments totalled 88 million units, while tablet PCs reached nine million during the period, according to the company, which is seeking to regain the lead as the world's largest smartphone maker after losing the crown earlier this year to Huawei.

"In consumer electronics, profitability is expected to weaken on growing competition and rising costs, despite solid demand," Samsung said in the earnings release.

"For 2021, the company expects a recovery in overall global demand but uncertainties will remain over the possibility of recurring epidemic waves of Covid-19."

  • 40% How much Samsung Electronics shares have surged from their March lows.

The death of Samsung Group chairman Lee Kun-hee over the weekend may add to uncertainty.

While his son Lee Jae-yong is expected to take over as chairman of the group, the younger Lee still faces two trials over allegations he used bribery and accounting trickery to smooth his path to succession.

The family will also have to pay billions of dollars in inheritance tax, and Samsung has so far declined to comment on how they will fund the payments.

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A version of this article appeared in the print edition of The Straits Times on October 30, 2020, with the headline 'Samsung warns of weak outlook after posting strong Q3 earnings'. Print Edition | Subscribe