US Reporter

Despite Low Phone Demand, Samsung Managed a Profitable Second Quarter

Samsung breathes a sigh of relief as second quarter profits overshadow the low smartphone demand

While business was sluggish for companies across various sectors, Samsung Electronics improved its profits from April to June and delivered second-quarter solid numbers for the first time since 2018.

Despite inflation, the company recorded strong sales due to demands for memory chips for server customers. As a result, shares of the memory chip and smartphone maker rose 2.5% after the announcement of preliminary second-quarter results, while the broader market rose 1.5%.

Samsung reported an operating profit of 14 trillion won, or $10.7 billion, an 11% increase from 2021 profits. Sales are also estimated to have increased by 21%. 

The company had a strong quarter during a tough time for chip makers, who warned about an impending flood of customer chips piling up to meet the growing demand from people working from home during the pandemic.

Chip makers like Micron and Advanced Micro Devices report declining demand as inflation squeezes spending.

“Memory chipmakers are expected to build inventory and hike shipments when prices rebound, and demand recovers next year,” said Cape Investment analyst Park Sung-Soon.

Data provider TrendForce reports that the prices of some DRAM chips have dropped by about 12% in the past month, while the prices of NAND flash chips are expected to decrease by 5% between July and September compared to the previous quarter.

Server chip sales mark the pinnacle of Samsung’s business as inflation, the possibility of a slowdown in key markets, the Russian invasion, and the COVID-19 freeze in China weighed on Samsung phone sales. Additionally, tech companies like Amazon, Google, Alphabet’s Meta, and Microsoft have played a significant role in Samsung’s revenue by buying chips to meet cloud demand.

On the other hand, Foxconn, a Taiwanese electronics supplier and iPhone maker for Apple, recently updated its full-year outlook and expressed optimism for the third quarter.

The value of the U.S. dollar also hit a 20-year high, boosting Samsung’s second-quarter chip gains as tokens are sold in dollars, which are converted into Korean headquarters figures.

Second-quarter smartphone shipments were estimated at 62-64 million, down 5-8% from the March estimate. In the first quarter, Samsung shipped 74 million smartphones. The drop in demand for smartphones is the result of inflation.

“This trend is the same for major global smartphone makers, although there is variance to some degree,” said Jene Park, Senior analyst at Counterpoint. “In particular, the hit to the demand for low- and mid-end smartphones seems more severe.”

Opinions expressed by US Reporter contributors are their own.