Samsung Q3 profit likely at 2-year high after Huawei orders, phone recovery

Seoul

SAMSUNG Electronics Co said on Thursday that its third-quarter profit likely jumped 58 per cent to the highest in two years, beating analysts' estimates as US restrictions on China's Huawei boosted the South Korean tech giant's phone and chip sales.

US action against Huawei Technologies has dampened demand for its phones outside of China, giving Samsung a leg up, analysts said.

The Chinese firm has also hurried to order more chips from Samsung after Washington moved to choke its access to commercially available chips from mid-September.

Samsung said that operating profit was likely 12.3 trillion won (S$14.5 billion) for the three months ended September - well above a Refinitiv SmartEstimate of 10.5 trillion won. It would be the strongest result since 17.57 trillion won in Q3 2018.

Revenue likely rose 6 per cent from the same period a year earlier to 66 trillion won, the company said.

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Samsung released only limited data in Thursday's regulatory filing ahead of the release of detailed earnings figures later this month.

"It seems Huawei's impact on Samsung's chip business was bigger than the market expected, and there was a big surprise in the smartphone and home appliance businesses," said CW Chung, head of research at Nomura in Korea.

Samsung was expected to post its biggest smartphone profit in at least four years, analysts said, as it gained market share from Chinese rivals and the novel coronavirus pandemic helped cut marketing costs.

Washington says Huawei is a vehicle for Chinese state espionage and has tightened restrictions on the firm, hurting demand for Huawei phones in Europe and other countries and boosting Samsung's sales at a time when markets outside China are recovering from Covid-19 lockdowns, analysts said.

"Many consumers were reluctant to buy Huawei phones because they thought that Huawei may discontinue phone sales and services because of US restrictions," Tom Kang, an analyst at Counterpoint said, adding that Samsung has boosted sales of mid- and low-end phones.

A surge in anti-China sentiment in India following a border clash in June is also seen as providing a boost to Samsung, which competes with Xiaomi and other Chinese rivals there.

Samsung's home appliance business also got a lift from the pandemic lockdowns, which spurred consumers to spend more on appliances such as air purifiers.

Consumer electronics rival LG Electronics also said on Thursday it likely made its largest Q3 operating profit ever of 959 billion won, which analysts attributed to strong home appliance and TV sales.

Samsung's shares have gained about 7 per cent so far this year. They ended down 0.3 per cent on Thursday in a slightly firmer overall market, with analysts pointing to memory chip prices and the uncertain Q4 outlook for the muted response.

Analysts doubted whether Samsung's fourth-quarter profit could beat the third, as memory chip prices are seen bottoming out and a new Apple iPhone model is expected on the market.

US rival Micron Technology, which posted a market-beating quarterly profit last month, forecast lower-than-expected sales in the following quarter, as it had not yet obtained new licences needed to sell its memory chips to Huawei.

Market researcher Trendforce expected DRAM chip prices to decline by about 10 per cent in the year-end quarter, as demand from the server industry has yet to make a noticeable recovery.

This comes even as Huawei rivals such as Xiaomi, Oppo and Vivo are all urgently stocking up on key components, in turn providing some support for the mobile DRAM chip market, Trendforce said. REUTERS