Samsung Electronics flags smaller-than-expected profit fall as chip market bottoms out

 Samsung Electronics flags smaller-than-expected profit fall as chip market bottoms out

By Hyunjoo Jin and Heekyong Yang

SEOUL (Reuters) - Samsung Electronics Co Ltd <005930.KS> on Wednesday flagged a smaller-than-expected fall in quarterly operating profit, indicating that memory chip prices bottomed out quicker than analysts had anticipated, strengthening hopes of a recovery.

The world's biggest memory chip maker has struggled since late 2018 as a weak global economy curbed spending by data centre customers and rising inventories of memory chips squeezed prices, ending a two-year industry boom.

But hopes for a rebound in chip prices are gaining momentum, and an expected easing in the U.S.-China trade war is lifting optimism that demand from server and 5G smartphone customers will return this year.

Operating profit in the quarter ended Dec. 31 likely fell 34% to 7.1 trillion won (4.6 billion pounds) from 10.8 trillion won a year earlier, Samsung said. That came in ahead of the 6.5 trillion won forecast from Refinitiv SmartEstimate.

Fourth-quarter revenue fell 0.5% to 59 trillion won.

Annual profit declined 53% to 27.7 trillion won, its lowest since 2015 and the steepest annual profit percentage drop in a decade.

Graphic: Samsung Electronics annual operating profit, https://fingfx.thomsonreuters.com/gfx/editorcharts/SAMSUNG%20ELEC-RESULTS/0H001QXTCB7Y/eikon.png

Samsung's shares were traded up 0.7% in a wider market <.KS11> that was down 0.8%.

The company's shares have rallied more than 40% in the past 12 months, outpacing the broader market's 8% gain.

CHIP REBOUND

Chip-price tracker DRAMeXchange said spot prices of DRAM chips - which provide devices with temporary workspace and allow them to multi-task - started to rebound in late 2019, and that prices are likely to stop falling in the first quarter.

A person familiar with Samsung's earnings told Reuters on Wednesday that the firm's chip and mobile earnings were better than expected, while earnings in the display business lagged.

Demand recovery for servers and mobile devices helped drive chip sales, while sales of premium phones such as the Galaxy Note 10 and Galaxy Fold lifted mobile earnings, the person said, declining to be identified as the information was not public.

Samsung gained smartphone market share in Europe and Latin America at the expense of Chinese rival Huawei Technologies Co Ltd , which suffered from U.S. sanctions that restricted its use of services from Alphabet Inc's Google on new phones.

Samsung is expected to unveil a new version of its flagship Galaxy S smartphone and another foldable phone on Feb. 11.

The firm is scheduled to disclose detailed earnings results later this month.

(Reporting by Hyunjoo Jin and Heekyong Yang; Editing by Richard Pullin and Christopher Cushing)

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Updated Date: Jan 08, 2020 07:06:40 IST