Samsung, LG expect 40% jump in Q1 operating profit

Samsung Electronics' semiconductor manufacturing plant in Pyeongtaek, South Korea. The company said it expects operating profit of 9.3 trillion won (S$11.1 billion) for January to March, up 44.2 per cent from a year earlier. PHOTO: BLOOMBERG
Samsung Electronics' semiconductor manufacturing plant in Pyeongtaek, South Korea. The company said it expects operating profit of 9.3 trillion won (S$11.1 billion) for January to March, up 44.2 per cent from a year earlier. PHOTO: BLOOMBERG

SEOUL • South Korea's two biggest electronics firms both forecast jumps of around 40 per cent in their first-quarter operating profits yesterday, with coronavirus-driven working from home fuelling global demand for semiconductors and home appliances.

Tech behemoth Samsung Electronics said in an earnings estimate that it expected operating profit of 9.3 trillion won (S$11.1 billion) for January to March, up 44.2 per cent from a year earlier, largely driven by robust sales of smartphones and the launch of its flagship Galaxy S21 series.

Meanwhile LG Electronics, South Korea's second-largest appliance firm after Samsung, forecast a 39.2 per cent jump in operating profit for the same period, to 1.5 trillion won. "Both quarterly revenue and operating profit are the highest in the company's history," it said in a statement.

The Samsung figures were ahead of expectations, said Ms Gloria Tsuen, vice-president at Moody's Investors Service, adding that "tight supplies in the semiconductor segment, especially Dram", among others, helped the firm's performance.

Analyst forecasts had averaged 8.88 trillion won, according to Bloomberg News.

Samsung Electronics is the flagship subsidiary of Samsung Group, the largest of the family-controlled empires known as chaebols that dominate business in the world's 12th-largest economy.

The coronavirus has wreaked havoc on the world economy, but has also seen many tech companies boom.

The worldwide move to working from home has seen consumer demand rise for devices powered by Samsung's chips, as well as for home appliances such as TV sets. Its estimated sales for the period were up 17.5 per cent year on year to 65 trillion won.

Analysts say the company has had a particular boost from rolling out its Galaxy S21 series in January, more than a month ahead of the flagship product's usual annual launch schedule. "Key to the success of this latest flagship has been its lower US$799 (S$1,070) starting price," Counterpoint Research said in a report. "Lower cost coupled with trade-in offers that essentially make the S21 device free is helping increase demand for these 'entry-level' flagships."

Samsung Electronics shares closed 0.47 per cent lower yesterday in Seoul.

The global chip-manufacturing industry had expected to see record revenue this year, with the stay-at-home economy persisting, according to Taipei-based market tracker TrendForce. But power outages across Texas in the United States - caused by a severe winter storm - shut down semiconductor factories clustered around Austin in February, including Samsung's.

The firm said operations at its factory returned to almost normal late last month but South Korea's Yonhap news agency reported it may suffer around 400 billion won in losses due to the shutdown.

Still, Hi Investment and Securities in Seoul said Samsung's first-quarter performance will greatly benefit from its mobile business, backed by solid shipments and cost control.

The tech giant is expected to have produced around 62 million smartphones in the first quarter, with a market share of 18.1 per cent, according to TrendForce. With the estimates, Samsung is expected to reclaim its global smartphone market lead, the tracker said, after losing the spot to Apple in the last quarter of last year.

"For the whole 2021, TrendForce expects Samsung to top the annual ranking" of smartphone brands by production, it added.

But Samsung's de facto leader Lee Jae-yong was jailed in January over a corruption scandal and that has raised uncertainty over succession at the company after the death in October of his father Lee Kun-hee, who turned Samsung Electronics into a global powerhouse. Experts say a leadership vacuum could hamper the firm's decision-making on large-scale investments, which have been key to its rise.

LG Electronics shares were down 0.94 per cent. Earlier this week, the firm said it was closing down its mobile phone business, after the division lost billions in recent years.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on April 08, 2021, with the headline 'Samsung, LG expect 40% jump in Q1 operating profit'. Subscribe