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Samsung profit halves on memory chip woes

Smartphone sales increase amid US sanctions on Huawei

Robust sales of the Galaxy Note 10 have helped offset Samsung's poor memory chip sales.   © Reuters

SEOUL -- Samsung Electronics' operating profit tumbled 56% in the third quarter as its key memory chip business continues to suffer from low global demand, although it shows signs of recovery in the next quarter.

South Korea's largest company said its operating profit reached 7.7 trillion won ($6.4 billion) in the July-to-September period, down 56.2% from a year ago in its preliminary earnings guidance. The tech giant's revenue dropped 5.3% to 62 trillion won during the same period. The full numbers will be released later this month.

Quarter-on-quarter, the company's operating profit rose 16.7% while its revenue increased 10.5% thanks to rising smartphone sales in the global market amid the U.S. sanctions on Samsung's Chinese rival Huawei Technologies.

Analysts say Samsung's earnings will improve in the fourth quarter and next year as recovery in DRAM and NAND memory chips is in sight. Nomura said that low inventory is likely to lift memory chip prices, with NAND from the fourth quarter and DRAM in the second quarter of 2020. Shares of Samsung Electronics closed at 48,900 won, up 2.41%, on the better-than-expected earnings.

"The memory market cycle, which drives much of Samsung Electronics' operating profit and share price performance, is passing through the bottom. NAND has already passed the bottom and DRAM should soon pass through the trough as well," said CW Chung, a senior analyst at Nomura.

Chung said that Samsung's mobile business may have offset losses from its chip business on the back of strong sales of the Galaxy Note 10, the company's top-tier handset released in August. Samsung also improved its profitability in the low- to mid-range segment to low-end model line-up comparing to the second quarter.

Samsung, the world's No. 1 smartphone maker, is widening its gap with Huawei Technologies in emerging markets as the Chinese rival struggles to deal with the Trump administration's sanctions on the company. Samsung's smartphone shipments in the central and eastern Europe soared 21% in the second quarter from a year ago, solidifying its leadership in the region, according to Counterpoint Technology Market Research.

"Samsung has been the main beneficiary of the drop in Huawei volumes, as it could offer a comparable range of smartphones and fill the portfolio gaps with its recent launches under the A-series," Peter Richardson, a research director at Counterpoint said. "The refreshed A-series was the star performer for Samsung. Nearly 70% of Samsung's shipments came from the A-series."

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