Samsung profit beats estimates as chips shake off Note 7 woes

[SEOUL] Samsung Electronics Co posted better than expected earnings after buoyant memory chip prices helped the world's largest smartphone maker bounce back from the death of its fire-prone Galaxy Note 7.

Operating income rose to 9.2 trillion won (S$11.15 billion) in the three months ended December, the Suwon, South Korea-based company said in preliminary results Friday.

That compares with the 8.29 trillion-won average of analysts' estimates compiled by Bloomberg in the past four weeks.

A persistent rise in chip prices spurred by Chinese demand mitigated the fallout from Samsung's biggest corporate crisis, when scores of reports about incendiary Note 7s forced the Korean company to kill its most profitable gadget.

It still hasn't revealed the results of a subsequent investigation into an episode that cost Samsung more than US$6 billion and assured Apple Inc of the lead in premium devices.

"Samsung's V-shaped recovery was widely expected and the shares are also expected to again set record levels this year, thanks largely to its chip business," Claire Kim, a Seoul-based analyst at Daishin Securities Co, said before the release.

"Memory chips are short on supply now and inventory is well below average because of strong demand from lower-end smartphone makers."

Samsung is counting on its flagship Galaxy S line this year to repair its image and fire up a beleaguered mobile division. The next iteration of the phone is said to feature a bezel-less display and voice-enabled digital assistant.

But the company's also warned of slowing key markets and growing uncertainty around trade protectionism and currency fluctuations.

Sales were 53 trillion won in the quarter, the company said, compared with the 52.1 trillion won analysts expected. It won't provide net income or break out divisional performance until it releases final results later this month.

Samsung's shares fell 1.7 per cent to 1,778,000 won in Seoul on Thursday, after marking their first annual increase in 2016 following three years of declines.

Samsung, which settles most component sales in US dollars, also got a lift from a weaker Korean won. The US dollar appreciated to 1,157.4 on average in the fourth quarter compared with 1,121.4 won in the previous three months, according to the Bank of Korea data.

Samsung's semiconductor division was probably its best performer in the fourth quarter on the back of stronger prices, lifting its shares to new highs in past weeks despite the company's challenges. Operating income from the chip business probably came to 4.5 trillion won in the quarter, according to the average of six analysts surveyed by Bloomberg, which would mark a record high for the business.

DDR3 4-gigabyte dynamic random access memory chips averaged US$2.48 in the fourth quarter, compared with US$1.75 in the previous three months, according to data from InSpectrum Tech Inc.

Samsung's main US semiconductor competitor also painted an optimistic outlook last month. Micron Technology Inc, the largest US maker of memory chips, predicted stronger-than-expected sales on demand for phone and computer parts.

Operating income from the phone division was probably 2.3 trillion won in the quarter, after posting a record low 100 billion won profit in the preceding three months, according to the analyst survey. The Galaxy maker has teamed up with independent third-party experts to determine the root cause of the fires and should announce the results soon.

"Since the cause of the fires has not been proved yet, we cannot yet guarantee the next Galaxy S8 will be a great success," Hanwha Investment & Securities Co said in a Dec 15 report.

The company's display division, which makes screens using organic light-emitting diodes, probably posted a profit of 1.1 trillion won. Earnings at the consumer electronics unit, which encompasses TVs and appliances, probably fell to 800 billion won because of rising panel prices, according to the analysts.

Increasing demand for OLED screens are limiting the negative impact from the Note 7 debacle. Samsung Display Co, the largest producer of those displays for smaller devices, may benefit with Apple said to be planning to adopt the technology in at least one new iPhone later this year.

BLOOMBERG