Samsung Q4 net profit misses estimates

Seoul

SAMSUNG Electronics missed analyst estimates for the fourth quarter and warned profitability will likely decline this quarter, citing weakness in its memory chip business and challenges with currency fluctuations.

South Korea's biggest company reported net income in the three months ended December of 6.45 trillion won (S$7.68 billion), missing the 7.3 trillion won average of estimates compiled by Bloomberg.

Shares fell as much as 2.8 per cent in Seoul on Thursday.

Samsung, the world's largest maker of memory chips and displays, struck a cautious tone that stood in contrast to that of many technology companies benefiting during the coronavirus lockdowns.

Just hours earlier, Apple and Facebook reported financial results that handily exceed estimates.

"In the first quarter, we expect overall profitability to decline due to relative weakness in the memory and display businesses," said Ben Suh, executive vice president of investor relations, during a call with investors. In the memory business, Samsung's most important profit engine, "results are likely to weaken due to currency effects and continued costs associated with new fab ramp up."

Operating profit for the semiconductor unit was 3.85 trillion won in Q4, short of the 4.62 trillion estimate from analysts. The company said it expects a recovery in the business in the first half.

In the smartphone business, Samsung struggled in the holiday period as Apple introduced its first 5G-capable iPhones and Chinese rivals put up fierce competition. The Cupertino, California-based company took over the No 1 position in Q4, ahead of Samsung and China's Xiaomi Corp, market research firms said on Thursday.

With a lot of good devices on the market, "there is only so much that Samsung can grab out of it", said Kiranjeet Kaur, research manager at IDC.

Investors had anticipated Samsung could increase its dividend payout substantially, in part because the founding Lee family faces an enormous inheritance tax bill.

Instead, the company said it would continue to return 50 per cent of free cash flow to shareholders between 2021 and 2023, although its annual dividend payout will increase slightly to 9.8 trillion won.

The results come just days after Samsung's de facto leader, billionaire heir Jay Y Lee, was sent back to prison on bribery charges.

Although professional managers lead the company's operating units, Lee has played a central role in major strategic decisions.

The company signalled it will continue to press ahead with critical deals and investments. Samsung will use its capital to expand the capacity of its foundry business, which fabricates chips for clients like Nvidia Corp, to meet demand and overcome current supply shortages. It will also invest in facility expansions and "meaningful" acquisitions, the firm added.

"For the last few years, we have been evaluating possible M&A opportunities very carefully and have made significant progress in terms of preparation," Choi Yoon-ho, chief financial officer of Samsung, said during the earnings call. "Although it is difficult to pinpoint a specific timing due to uncertainties in the internal and external business environment... we are optimistic of carrying out meaningful M&A activities during this term."

Analysts including Yungsan Choi of Ebest Investment & Securities have been anticipating a long-awaited rebound in memory chip prices due to demand for servers and more powerful 5G smartphones.

Component supplier Murata Manufacturing Co and chipmaker MediaTek Inc both anticipate more than half a billion 5G handsets to be shipped this year.

Chipmakers Intel Corp and Micron Technology Inc gave a bullish forecast for the first quarter of this year on continued demand for computers and phones that enable working and studying from home.

Samsung's contract chip manufacturing is expected to expand with the addition of Intel as a customer.

The two companies have discussed development and production of Intel's mainboard chipsets over the last two years and Samsung will produce the chipset at its Austin, Texas plant starting from this quarter, Meritz Securities said in a note. BLOOMBERG