While business has been slow for companies across multiple industries, Samsung Electronics improved profits from April to June to produce excellent results in the second quarter for the first time since 2018.
Despite the inflation, the company has achieved strong sales of memory chips for server customers. As a result, the memory chip and smartphone maker’s shares rose 2.5% after announcing preliminary second-quarter results, while the broader market rose 1.5%.
Samsung reported an operating income of 14 trillion won, or $ 10.7 billion, up 11% from the previous year. In line with estimates, turnover also grew by 21%. The company had a strong quarter during a tough time for chipmakers, which warned of an impending glut of chips from customers stockpiling to meet growing demand from people working from home during the pandemic.
Chipmakers like Micron and Advanced Micro Devices report falling demand as inflation weighs on spending.
“Memory chipmakers are expected to build inventory and hike shipments when prices rebound, and demand recovers next year,” said Park Sung-Soon, an analyst at Cape Investment.
Data provider TrendForce reports that prices for some DRAM chips have fallen about 12% over the past month, while NAND flash chip prices are expected to drop 5% between July and September compared to last quarter.
Server chip sales mark the peak of Samsung’s business as inflation, the possibility of a slowdown in key markets, the Russian invasion and the COVID-19 lockdown in China weighed on Samsung phone sales. Additionally, tech companies like Amazon, Google, Alphabet’s Meta and Microsoft have played a crucial role in Samsung’s earnings by buying chips to meet cloud demand.
On the other hand, Foxconn, a Taiwanese electronics supplier and iPhone maker for Apple, recently updated its full-year outlook and expressed optimism for the third quarter.
The value of the US dollar also hit a 20-year high, boosting Samsung’s second-quarter chip gains because the tokens are sold in dollars, which are converted into Korean headquarters figures.
Second-quarter smartphone shipments were estimated at 62-64 million, down 5-8% from the March estimate. In the first quarter, Samsung shipped 74 million smartphones. The drop in demand for smartphones is the result of inflation.
“This trend is the same for major global smartphone makers, although there is variance to some degree,” said Jene Park, Senior analyst at Counterpoint. “In particular, the hit to the demand for low- and mid-end smartphones seems more severe.”