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Samsung's Q1 operating profit rises 3% on robust chip demand

Coronavirus pandemic may weigh on the South Korean company from Q3

Demand for server chips gave Samsung's sales a shot in the arm in the first quarter of 2020.   © Getty Images

SEOUL -- Samsung Electronics said Tuesday that its operating profit rose 2.7% in the first quarter from a year ago thanks to increased demand for server chips from cloud clients and steady smartphones sales.

The world's largest memory chip maker announced in an earnings guidance that its operating profit came to 6.4 trillion won ($5.2 billion) during the January-March period, up 2.73% year-on-year. Its sales jumped 4.98% to 55 trillion won during the same period.

Quarter-on-quarter, however, the company's operating profit dropped 10.61% and sales fell 8.15%. Full earnings data will be released later this month.

Analysts attributed the better-than-expected results to strong demand for DRAM chips from four leading cloud providers in the U.S. -- Amazon, Microsoft, Google and IBM -- for their data centers.

"They were able to fulfill and ship last year's deferred orders in the first quarter of 2020" thanks to the successful transfer of a portion of production capacity from China to Taiwan, according to Mark Liu, a senior analyst at TrendForce.

The robust sales of chips were also confirmed by the company's CEO Kim Ki-nam last month, when he forecast the market will continue to grow this year thanks to strong demand from artificial intelligence, automotive, data centers and fifth-generation telecom networks.

Most chipmakers were relatively unscathed by the coronavirus in the first quarter, as they were able to keep production largely on track.

However, the Taipei-based TrendForce said the impact of the coronavirus pandemic may be reflected in server shipments from the third quarter, weighing on Samsung.

"Some of Samsung's back-end server DRAM packaging operations are based in Luzon, the Philippines. Therefore, the continued quarantine of Luzon may affect the shipment schedule of Samsung's server DRAM modules," the market research outfit said in a report on Monday.

For the industry as a whole, TrendForce said it expects "the rebound of memory chip prices will be flattened" as the pandemic dampens demand from the second half. "That's different from our previous prediction that DRAM and NAND flash memory prices will continue to rebound throughout this year."

CEO Doris Hsu of GlobalWafers, the world's third-largest wafer material maker and a supplier to Samsung, TSMC and Intel, said last month that the "unprecedented" coronavirus crisis will weigh on demand if not contained, though she was more optimistic about the longer term. "We still believe ... wafer and chip demand for data centers and memory chips will increase after the pandemic."

Meanwhile, Samsung's smartphone sales remained stable thanks to its minimum exposure to the Chinese supply chain and China market demand, accounting for 22% of global market share in February, according to Counterpoint Research.

Shares of Samsung were trading up 1% in the morning trading thanks to the positive news.

Additional report by Cheng Ting-Fang in Taipei.

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