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Samsung sees Q3 profit up 28% on chip demand, foldable phones

Higher product prices plus cheap won helped bottom line, analysts say

Samsung Electronics is riding a wave of demand for its semiconductors and foldable smartphones.   © AP

SEOUL -- Samsung Electronics reported a double-digit increase in operating profit during the third quarter from a year ago, boosted by demand for semiconductors, foldable smartphones and the effects of a weak local currency against the U.S. dollar.

The South Korean tech giant said Friday in releasing earnings guidance for the three months ended Sept. 30 that its operating profit jumped 27.9% to 15.8 trillion won ($13.3 billion) from the same period last year.

The figure is in line with market expectation of an increase of 28.2% to 15.83 trillion won in FnGuide's latest consensus based on data from 22 brokerage houses. Samsung's revenue increased 9% to 73.0 trillion won during the same period, slightly below the consensus view of a 10.4% increase to 73.9 trillion won.

Samsung does not elaborate on its guidance and is expected to release full results, including net profit, later this month.

Rising prices for both memory and foundry chips combined with strong sales for its Galaxy Z foldable smartphones launched in August boosted performance during the quarter, according to analysts. A weakening South Korean currency likely added about 1 trillion won to the company's bottom line, they said.

"Semiconductors and displays are heavily affected by foreign exchange leverage," said Lee Jae-yoon, an analyst at Yuanta Securities.

According to the Bank of Korea, South Korea's currency traded at an average of 1,158.3 won to the U.S. dollar in the third quarter, up 37.2 won from the previous three-month period, which means the won weakened in value. A cheaper won can make Samsung's products less expensive in overseas markets and increases the value of profits earned overseas when converted into the South Korean currency.

Regarding Samsung's mobile business, Lee said that foldable smartphone sales stood out in the earnings "as they are more expensive than" the company's Note series of smartphones.

Sales of Samsung's latest foldable smartphones, Galaxy Z Fold 3 and Flip 3, reached 1 million units in the first 39 days after their launch in South Korea, marking the third-fastest pace among the company's smartphones. Samsung has not released global sales figures.

There is growing optimism concerning the overall market for foldable smartphones. Counterpoint Research forecast that shipments will grow by three times this year compared to last year.

Hanwha Securities expects Samsung's semiconductor performance to best rivals for the second half of this year, led by improvement in foundry chips, which are made-to-order semiconductors. The brokerage said before the results came out that Samsung's orders won in the third quarter likely boosted its operating profit margin to more than 10%.

Samsung is further developing its foundry technology and plans to make chips more cost-effective. The company announced on Thursday that it is scheduled to produce its first 3 nanometer-based chip designs for customers in the first half of 2022, while its second generation of 3 nm is expected in 2023.

"We will increase our overall production capacity and lead the most advanced technologies while taking silicon scaling a step further and continuing technological innovation by application," Choi Si-young, president and head of the company's foundry business, said at its annual foundry forum. Silicon scaling refers to making chips with smaller designs.

Samsung in August announced a plan to invest 244 trillion won and hire 40,000 employees over the next three years, focusing on system chips and the foundry business. The large-scale investment was a clear response to the government of South Korean President Moon Jae-in, which expects Samsung and Vice Chairman Lee Jae-yong to contribute to the performance of the national economy.

Lee, who is following in the footsteps of his late father and grandfather in helming Samsung, got out of prison on parole just two weeks before the investment and hiring plan was announced. He had served more than half of a 30-month prison term for corruption and his release was both welcomed and criticized in a country where convicted business titans often receive leniency.

Despite Samsung's success with foldable phones, Lee will have to deal with increasing competitive pressures in smartphones. CEO Lei Jun of Chinese smartphone maker Xiaomi laid out a direct challenge in August, saying it aims to surpass its South Korean rival as the world's top seller in three years.

Amid strong results this year, Samsung's stock price has underperformed as investors fret that a cyclical downtrend in memory chips could be just around the corner and possibly weigh on the company's value.

Samsung shares closed down 0.14% to 71,500 won on Friday after rising as high as 72,400 won earlier in the session. The guidance came out just ahead of the start of trading.

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