Sam­sung’s bot­tom line bet­ter than ever

South Korea’s largest com­pany side­steps jail­ing of chief, Note 7 fi­asco with record profit, sales

The Hamilton Spectator - - BUSINESS - YOUKYUNG LEE

SEOUL — No leader and scorched Note 7 smart­phones? No prob­lem.

Af­ter a tu­mul­tuous year of sur­real cor­rup­tion scan­dals in­volv­ing ex­otic horses and the jailed bil­lion­aire scion and one of the most em­bar­rass­ing re­calls in the con­sumer elec­tron­ics his­tory, Sam­sung stunned in­vestors with an­other im­prob­a­ble record: the South Korean tech gi­ant was poised to earn more than Ap­ple and end In­tel’s quar­ter cen­tury dom­i­nance in the semi­con­duc­tor in­dus­try.

Seem­ingly in­vin­ci­ble Sam­sung Elec­tron­ics ap­pears set to log record an­nual profit this year as ex­plod­ing use of data in mo­bile de­vices and the “mem­ory su­per­cy­cle” help it sur­mount the jail­ing of its de facto leader and side­step losses from its fire-prone Galaxy Note 7s.

South Korea’s largest com­pany re­ported Thurs­day record high quar­terly profit and sales that likely will help it nudge aside In­tel as the lead­ing maker of semi­con­duc­tors. Sam­sung also likely out­stripped Ap­ple in quar­terly earn­ings for the first time as soar­ing use of con­nected de­vices and mo­bile data fu­elled de­mand for com­puter chips.

Sam­sung’s bot­tom line is bet­ter than ever, even with its vice chair and de facto chief Lee Jae-yong jailed as part of a cor­rup­tion scan­dal that un­seated for­mer South Korean pres­i­dent Park Geun-hye.

While Lee and Park bat­tle al­le­ga­tions of bribery and other charges, Sam­sung is thriv­ing thanks to tiny mi­crochips called DRAM and NAND mem­ory chips, which are needed to store and process data in servers and mo­bile de­vices.

Com­pa­nies are adding server mem­ory ca­pac­ity to ex­pand new server plat­forms and cloud ser­vices and han­dle ar­ti­fi­cial in­tel­li­gence and other emerg­ing ser­vices. Hard­ware man­u­fac­tur­ers will likely in­crease or­ders of mem­ory chips for smart­phones as they launch new mod­els later this year. Con­sumers also ex­pect their hand­sets to be packed with higher mem­ory stor­age, which in­creases mem­ory de­mand.

The un­prece­dented boom in the mem­ory chip in­dus­try dubbed the “mem­ory su­per cy­cle” helped push Sam­sung’s April-June net in­come to 10.8 tril­lion won ($9.7 bil­lion), up 85 per cent from 5.8 tril­lion won a year ear­lier.

Op­er­at­ing profit jumped 73 per cent over a year ear­lier to 14.1 tril­lion won ($12.7 bil­lion) while sales rose 20 per cent to 61 tril­lion won ($54.8 bil­lion), in line with Sam­sung’s ear­lier guid­ance.

De­spite rel­a­tively slow de­mand for smart­phones and TVs, in­creased use of con­nected de­vices and mo­bile data is driv­ing de­mand for server mem­ory to store, an­a­lyze and process data. Mem­ory chip prices have soared thanks to tight sup­ply con­di­tions, bring­ing un­prece­dented prof­itabil­ity to both Sam­sung and South Korea’s No. 2 chip man­u­fac­turer, SK Hynix.

Nearly 60 per cent of Sam­sung’s quar­terly in­come was gen­er­ated by its semi­con­duc­tor divi­sion, which booked a record op­er­at­ing in­come of 8 tril­lion won ($7.2 bil­lion) on sales of 17.6 tril­lion won ($15.8 bil­lion).

Sam­sung’s other com­po­nents busi­ness, which makes high-end dis­play pan­els called OLED for smart­phones, also saw solid gains in earn­ings af­ter this spring’s launch of new Sam­sung Galaxy smart­phones us­ing the ad­vanced dis­plays.

The Galaxy S8 se­ries of smart­phones recorded higher sales than their pre­de­ces­sors, help­ing the com­pany’s mo­bile busi­ness re­bound from last year’s cri­sis over Galaxy Note 7s that had to be re­called and even­tu­ally dis­con­tin­ued be­cause they tended to over­heat or catch fire. That fi­asco cost Sam­sung more than $5 bil­lion last year.

Sam­sung said its mo­bile busi­ness logged 4.1 tril­lion won ($3.7 bil­lion) in op­er­at­ing profit. That is slightly lower than its year-ear­lier re­sult due to higher com­po­nent prices but nearly dou­ble the pre­vi­ous quar­ter’s in­come.

The good times for Sam­sung ap­pear likely to put it ahead of its ri­vals.

Ap­ple is fore­cast to re­port $8.2 bil­lion in quar­terly net profit when its fi­nan­cial re­sults are dis­closed on Tues­day, ac­cord­ing to Fact Set. April-June is typ­i­cally a slow sea­son for Ap­ple.

In­tel was ex­pected to book $14.4 bil­lion in quar­terly rev­enue later Thurs­day.

Look­ing ahead, Sam­sung said its third quar­ter profit may take a hit from mar­ket­ing ex­penses from its up­com­ing launch in its new Galaxy Note se­ries smart­phone.

But it still has a good chance of re­port­ing its big­gest an­nual earn­ings in its his­tory this year.

AHN YOUNG-JOON, THE AS­SO­CI­ATED PRESS

A woman walks by an ad­ver­tise­ment of Sam­sung Elec­tron­ics’ Galaxy S8 smart­phone at its shop in Seoul.

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