Samsung Electronics beats first-quarter estimates, braces for bigger blow from coronavirus

SEOUL (Reuters) – Samsung Electronics Co Ltd (005930.KS) said on Tuesday its first-quarter operating profit likely managed to rise slightly from a slump a year earlier, as solid chip sales helped cushion the blow from the coronavirus pandemic on smartphones and TVs.

The South Korean tech giant is bracing for a bigger hit from the coronavirus which has led to a series of suspensions of factories and retail stores in Europe, India and the United States.

Samsung said operating profit was expected to be 6.4 trillion won ($5.2 billion) in the quarter ended March, compared with 6.2 trillion won a year ago and the 6.2 trillion won estimate from analysts according to Refinitiv SmartEstimate.

Revenue likely rose 5% to 55 trillion won from a year ago, in line with the 55.6 trillion won estimate.

Samsung Electronics shares were up 1.5% in morning trade, compared to a 1.1% rise of the broader market .KS11.

The maker of smartphones, TVs, appliances, memory chips and displays is the first global tech company to report its January-to-March quarter earnings estimates.

Samsung Electronics said in March the coronavirus pandemic would hurt sales of smartphones and consumer electronics this year, while demand from data centres would fuel a recovery in memory chip markets.

The first-quarter results are smaller than Samsung’s internal forecast from early March, and the company is expecting a bigger hit from the virus in the second quarter, a person familiar with Samsung’s operations said.

Kim Sun-woo, an analyst at Meritz Securities, said that while memory chip sales would be robust in the second quarter, the mobile business would suffer.

“Even though Samsung’s mobile business was hit by the coronavirus outbreak this quarter, it will likely face bigger challenges in the second quarter – now that the United States and Europe have become the hardest-hit countries,” Kim said.

Hana Financial Investment recently cut its forecast for Samsung’s smartphone shipments to 260 million, from an initial forecast of 300 million because of slower demand for its high-end smartphones, which will also erode its mobile margins.

Taiwan’s Foxconn, a key supplier of Apple Inc’s (AAPL.O) products, said on Monday that its January-March revenue declined 12% from the previous year, after Apple warned it was unlikely to meet its March-quarter sales guidance.

CHIP BUFFER

The company did not provide a breakdown on expected earnings for each division in its guidance released on Tuesday.

Analysts say the company’s memory chip business, which generated more than 50% of its operating profit in 2019, would likely report better-than-expected results in the first quarter.

Memory chip prices are rising as work-from-home requirements boost demand from the data centres that support internet services such as streaming and cloud computing, analysts have said.

Prices for DRAM memory chips are up more than 3.5% since January, according to industry tracker DRAMeXchange.

“While it’s likely that demand for DRAM memory chips was down, demand for server DRAM from data centre customers has continued to rise during the first quarter,” Park Kang-ho, an analyst at Daishin Securities, said.

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