Samsung pares losses on improved chip demand

(Bloomberg): Samsung Electronics Co.’s quarterly earnings beat estimates after memory chip prices began to climb out of a persistent downturn.

The world’s largest memory chip maker reported a 34 per cent fall in operating income to 7.1 trillion won ($6.1 billion) in the three months ending December, according to preliminary results.

In mobile devices, Samsung is expected to report lower-than-expected shipments of smartphones for the quarter but its average selling price probably increased thanks to the Galaxy Fold, a $1,980 Android device that opens up like a book.

Samsung is expected to unveil on February 11 in San Francisco a second foldable device that folds into a square. The company’s mainstream flagship device – whose name is rumored to be the Galaxy S20, a change in naming scheme – is also likely to be unveiled at that event.

Samsung said its devices accounted for 54 per cent of the global 5G smartphone market as of November 2019, after it shipped more than 6.7 million Galaxy 5G smartphones last year.

Chip gains

Global chip prices – the biggest determinant of Samsung’s bottom-line – have shown signs of escaping a protracted slump, helped along by the easing of trade tensions between the US and China and boosted by orders from data center operators. Demand for DRAM chips used in smartphones and servers is projected to rise in line with technology advances that require more and better silicon.

“The fundamental of Samsung’s chip business is great,” said Jeon Kyung-dae, chief investment officer for equities at Macquarie Investment Management Korea. “Memory chip prices already turned around in the fourth quarter and the recovery has started earlier than the market’s expectation. Samsung is expected to ramp up capital expenditure in its memory business this year.”

Wall Street has been predicting a recovery in semiconductor demand – hammered in 2019 by flagging mobile gadget sales and a slowing expansion in cloud computing – and expects the market for computer and smartphone components will return to growth in the second-half of 2020.