Samsung reports mixed second quarter as profit growth slows

Samsung Electronics' chip factory in Hwaseong, Gyeonggi where the initial volume of 3 nanomter chips was produced [YONHAP]

Samsung Electronics had a mixed second quarter with a combination of strong, near-record sales and weak profits reflecting challenges in the smartphone and appliance businesses and possibly some early trouble in chips.

The world's biggest smartphone and memory chip maker is forecasting an operating profit of 14 trillion won ($10.7 billion) in the April -to-June period, up 11.4 percent on year. The figure falls slightly short of the market consensus of 14.7 trillion won, as reported by FnGuide.

Sales are expected to come in at 77 trillion won, up 20.9 percent over the year-earlier period and lower than the estimate of 77.2 trillion won.

The results bring an end to an extraordinary winning streak over three quarters, with the company posting record sales from the third quarter of 2021 to the first quarter of this year. Second-quarter sales failed to break the first quarter's 77.8 trillion won, an all-time high.

The operating profit edged down 0.7 percent from the first quarter, although it is the best for a second quarter since the 2018 during a semiconductor boom. In 2018, Samsung Electronics had a 14.9 trillion won operating profit in the second quarter and 17.6 trillion won in the third quarter.

Neither segmentation nor net profit were provided in the guidance released by the company Thursday.

According to analysts, the semiconductor business was the biggest contributor to earnings, while the company's smartphone and consumer electronics businesses lagged.

The chip business likely generated 10 trillion won in operating profit and smartphones and network equipment 2.6 trillion won, according to Kim Dong-won, an analyst at KB Securities.

Displays brought in an estimated 900 billion won and consumer electronics 500 billion won.

"The lower-than-expected result is owing to slower demand for memory chips in the face of weakening sales of digital products," Kim said. "The shipment volume of televisions dropped 28 percent quarter on quarter and smartphones fell 17 percent."

As people struggle to afford necessities in an inflationary environment, demand for electronic devices has weakened, especially compared to the height of the pandemic, when people spent more time online at home.

With weaker demand and possible gluts, Samsung Electronics is facing historically-high inventory levels and is cutting production, clouding prospects.

Some analysts said that the results look good considering all the headwinds, including higher costs and weak consumption.

"Given that a slow-down in sales became more obvious in June, the company did fairly well," said Kim Sun-woo, an analyst at Meritz Securities.

He believes that sales of dynamic random-access memory (DRAM) chips drove profitability, adding that shipment of DRAMs increased by 5 percent on quarter.

For the future prospects, contract-chipmaking business remains critical.

"The yields of advanced manufacturing processes are still in the process of being stabilized, and they are closely linked with the competitiveness of smartphone business," Kim said.

The chipmaker has started producing 3-nanometer chips, although their yields are reportedly lower than 50 percent, widely considered the minimum for the product to make sense from the business point of view.

Shares of Samsung Electronics jumped by 3.19 percent on Thursday to close at 58,200 won. They are down 26 percent this year and 27 percent on year.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]