A likely 53 per cent surge in its operating profit for the second quarter was ported by Samsung Electronics Co Ltd which was much higher than the estimates of the market – driven by strong chip prices and surge in demand despite lower smartphone sales.

Higher by 33 per cent compared to the first quarter, the preliminary result also reflects the surge in demand for chips which has brought down stockpiles because of a pandemic-led consumer appetite for electronics and recovering investment in data centres.

Profit for the quarter ended June 30 was likely 12.5 trillion won ($11 billion), said the world’s largest memory chip and smartphone maker, which was much higher than a Refinitiv SmartEstimate forecast of 11.3 trillion won. If the company confirms this preliminary data in its final results later this month, it would be the biggest second-quarter profit for the te3ch giant since 2018.

“Third-quarter profit is expected to be even higher on strong mobile DRAM memory chip prices, and peak seasons for mobile and display businesses,” said Park Sung-soon, analyst at Cape Investment & Securities.

According to analysts, the likely profit for the second quarter for the company’s chip division rose by a fifth or more compared to the same period a year ago, for the second quarter, because of strong memory-chip prices and surge in demand for consumer electronics as well as from data centre customers.

Servers, mobile phones and other computing devices widely use the memory chip, especially for DRAM chips, from Samsung and its shipments during the quarter were higher than expected which drove up profits for the company’s chip business which helped to more than cover up for the sharp quarter on quarter drop in shipments of the company’s smartphones.

According to analysts, costs for the first quarter were also likely reduced by improvement in yield in cutting-edge 1z nanometre DRAM chip production using ASML’s extreme ultraviolet lithography (EUV) machines.

Analysts said that there was also a likely improvement in the profits of chip contract manufacturing and logic chip design businesses of Samsung with production operations returning to normal at the storm-hit factory of the company in Texas, United States.

“One of the most-anticipated elements in the earnings call later this month is how much the chip contract manufacturing business has progressed in competitiveness, and the current status of foundry customers and orders,” said Lee Won-sik, analyst at Korea Investment & Securities.

“Another is what changes Samsung expects in memory chip profitability, as competitors like Micron are said to be narrowing the technology gap (with Samsung),” Lee added.

However according to Shinyoung Investment & Securities, in the April-June quarter, there was a drop in Samsung’s smartphone shipments to about 59 million compared to about 76 million in the first quarter, with a slowdown in demand for the company’s flagship model which it had launched in the first quarter.

Analysts said that the drop in smartphone shipments during the quarter was also likely because of new Covid-19 outbreaks in regions such as India and Vietnam and a shortage in the supply of mobile processor chips.

(Adapted from TheEconomicTimes.com)