Samsung profits surpass projections despite choppy conditions

Samsung Electronics' Seocho office [YONHAP]

Samsung Electronics reported a better-than-expected operating profit in the second quarter, declaring that mounting inventory levels have bottomed out while projecting a rebound in sales and chip prices.

The Suwon, Gyeonggi-based company vowed to continue production cuts for its NAND flash memory chips while beefing up the production capacity of high-end dynamic random-access memory (DRAM) chips such as its high bandwidth memory (HBM) range.

Its second-quarter operating profit exceeded the preliminary 600 billion won ($469 million) published by the company on July 7 to reach 668.5 billion won for the April-June period. It also beat the market consensus of 225 billion won compiled by FnGuide.

Sales in the second quarter dropped 22.3 percent to 60 trillion won, short of the analyst expectation of 61.8 trillion won.

Quarterly net profit nosedived 84.5 percent to 1.7 trillion won, above the market estimate of 1.1 trillion won.

Its Device Solutions division, responsible for its semiconductor business, saw an operating loss of 4.36 trillion won, marking the second consecutive quarterly loss. However, that second-quarter result is a slight improvement compared to the first quarter’s 4.58 trillion won loss, which was its first loss in 14 years due to large chip inventories and shrinking demand. Sales fell 48 percent on year to 14.73 trillion won.

Compared to the first quarter, the size of the operating loss was reduced as shipments for DRAM and HBM chips exceeded the company’s preliminary guidance while there was rising demand in the generative artificial intelligence market.

“Although our inventory level [for memory chips] was rather high due to sluggish demand, on a positive note for both DRAM and NAND flash memory chips [inventory] bottomed out in May and has since been declining rapidly,” said Kim Jae-june, executive vice president at Samsung’s DS division, at a conference call Thursday. “We are planning to continue to control the chip production in the second half of this year, especially for NAND, to speed up the normalization of our inventory levels.”

To boost profitability, the chipmaker will focus on producing HBM chips.

"We anticipate the demand for HBM chips will annually grow more than 30 percent for the next five years," the company said. "We have already secured demand amounting to 1 billion gigabits and will double the production amount of the chips by 2024."

For its consumer electronics business, operating profit skyrocketed 105 percent on year to 740 billion won. Sales dropped 3 percent to 14.39 trillion won.

Operating profit for the Mobile eXperience (MX) division, or its smartphone and network device business, surged 16 percent to 3.04 trillion won. Sales sank 13 percent to 25.55 trillion won.

The company noted stellar sales performances from its flagship Galaxy S23 series as a factor driving robust profit. The new release of the Galaxy Z Flip 5 and the Galaxy Z Fold 5 could boost profits in the next quarter.

The panel-making business's operating profit sank 21 percent to 840 billion won and sales dropped 16 percent to 6.48 trillion won.

The growing lineups of extended reality (XR) devices could boost its profitability, the company said, as it is capable of producing its panel range for immersive headsets.

The $218 million acquisition of eMagin, a U.S. organic light emitting diode (OLED) microdisplay maker, will be closed in October, the company stated at a conference call Thursday. The acquisition announcement was made in May.

“The key purpose of this acquisition is to enhance our technology and to prepare ourselves for the XR device market,” the company said. “Once the XR devices become popularized, it will bring fundamental change in the way people live, its impact even surpassing that of what happened when smartphones were introduced to the world.”

The company revealed it formed a separate team to develop various microdisplay technologies last year.

The company reported 14.5 trillion won in capital expenditure, a record for a second quarter, as well as an all-time record of 7.2 trillion won in research and development.

BY LEE JAE-LIM [lee.jaelim@joongang.co.kr]