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Samsung 1Q profit jumps 44.2% on strong smartphone sales

Top memory chipmaker overcomes losses from Texas plant idled in winter storm

Samsung Electronics, the world's biggest manufacturer of smart phones and memory chips, reported operating profit and sales gains during the first quarter of this year.   © Reuters

SEOUL -- Samsung Electronics said Wednesday that its operating profit rose 44.2% in the first quarter from the same period last year, led by strong sales of smartphones and home appliances during the coronavirus pandemic.

Issuing earnings guidance for January through March, the world's biggest smartphone maker announced that operating profit amounted to 9.3 trillion won ($8.3 billion) during the three-month period. Sales, meanwhile, rose 17.5% to 65 trillion won.

From the previous quarter, the South Korean company's operating profit increased 2.8% while sales rose 5.6%. Samsung did not elaborate on the guidance, awaiting the release of its full earnings results, including on a net basis, later this month.

Analysts say the better-than-expected results came on strong sales in smartphones and high-margin wearable devices along with home appliance and televisions as consumers spent more time at home due to the spread of COVID-19.

"The release of its new Galaxy smartphone boosted Samsung's sales and profits in the first quarter," said Park Sung-soon, an analyst at Cape Investment & Securities. "Home appliances also enjoyed robust demand. For memory chips, DRAM prices started to rise, but the company reflected losses from its foundry fab in Austin."

Samsung, the world's largest memory chipmaker, had to suspend foundry production -- the making of chips for other companies -- at the plant in Texas after a debilitating winter storm hit the southern U.S. state in February. Its chip fabrication plant, which is responsible for 5% of world supply, was idled from Feb. 16 until late March and added to existing shortages hampering the global supply chain.

The company also ranks No. 2 globally after Taiwan Semiconductor Manufacturing Co. in contract chipmaking.

The importance of semiconductors has been underscored in recent months by the global shortage of the devices due to pandemic-induced demand that slowed automobile production before spreading to the manufacturing of smartphones and personal computers.

Analysts estimate that the disruption at the Austin plant may have reduced Samsung's revenue by about 300 billion won. Its chip business, however, is forecast to rebound in the second quarter thanks to rising prices.

Samsung's share price fell 0.47% to close at 85,600 won on Wednesday after the earnings guidance, which came out before the market opened.

Lee Seung-woo, an analyst at Eugene Investment & Securities, said in a report ahead of the release that besides increased smartphone shipments, sales of Galaxy Buds and other high-margin wearable products likely did well. Samsung's consumer electronics division is expected to have posted about 1 trillion won of operating profit "thanks to TVs and home appliances," he wrote.

Samsung leads the global smartphone market, accounting for a 19% share last year, followed by Apple of the U.S. at 15% and China's Huawei with 14%, according to Counterpoint Research. Samsung currently has high hopes for its foldable smartphones, and plans to ramp up production with a new, double-folding model under development, sources have previously told Nikkei Asia.

Koh Dong-jin, the Samsung CEO in charge of its mobile division, told the company's annual shareholders' meeting last month that it was "making our best efforts to increase production of foldable smartphones."

Samsung is enjoying solid performance amid the pandemic thanks to its wide product lineup and overall resilience, but is going through a period of management uncertainty after the jailing in January of its leader, Vice Chairman Lee Jae-yong.

Lee is the grandson of Samsung's founder and son of its former leader Lee Kun-hee, who died last year. Lee Jae-yong has been the company's chief decision-maker since his father fell ill in 2014. He is currently hospitalized in Seoul after undergoing surgery for appendicitis two weeks ago and is expected later this month to return to prison where he is serving a two-and-half year term for bribery and embezzlement.

His absence also comes as the administration of U.S. President Joe Biden invited Samsung and its peers for a meeting next Monday to discuss the semiconductor supply chain in the country, according to industry sources and media reports.

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