Samsung Electronics profit likely at two-year high after Huawei orders, phone recovery
By Joyce Lee and Hyunjoo Jin
SEOUL (Reuters) - Samsung Electronics Co Ltd announced that third quarter earnings are likely to jump 58% to their highest level in two years, beating analysts' estimates as US restrictions on China's Huawei phone and boosted chip sales by the South Korean tech giant.
U.S. action against Huawei Technologies Co Ltd has dampened demand for its phones outside of China, giving Samsung a head start, analysts said.
The Chinese company has also rushed to order more chips from Samsung after Washington blocked access to commercially available chips from mid-September.
Samsung said Thursday that operating income for the three months to September would likely be 12.3 trillion won ($ 10.6 billion), well above a SmartEstimate refinitive of 10.5 trillion won. It would be the strongest result since won 17.57 trillion in the third quarter of 2018.
Sales are likely to have increased 6% year over year to 66 trillion won.
Samsung released limited data on Thursday before detailed earnings numbers were released later this month.
"It appears that Huawei's impact on Samsung's chip business has been greater than the market anticipated, and there has been a big surprise in the smartphone and home appliance business," said CW Chung, head of research at Nomura in Korea.
MOBILE PROFIT INCREASES
According to analysts, Samsung should make its biggest smartphone profit in at least four years as it gained market share from Chinese competitors and the coronavirus pandemic helped lower marketing costs.
A tool against Chinese state espionage, according to Washington, Huawei has tightened the company's restrictions, impacted demand for Huawei phones in Europe and elsewhere, and increased Samsung's sales at a time when markets outside of China are affected by COVID-19 -Blocks recover, analysts said.
"Many consumers were reluctant to buy Huawei phones because they thought Huawei might stop selling and servicing phones due to US restrictions," said Tom Kang, an analyst at Counterpoint, adding that Samsung had Mid sales - and low-end phones.
A surge in anti-China sentiment in India following a border dispute in June is also seen as a boost for Samsung, which is competing with Xiaomi and other Chinese rivals there.
Samsung's home appliance business was also hit by the pandemic lockdowns, which led consumers to spend more on devices like air purifiers.
Consumer electronics competitor LG Electronics announced Thursday that it had probably its largest third-quarter operating profit ever at won 959 billion, analysts attributed to strong sales of home appliances and televisions.
CHIP PRICES BELOW
Samsung's shares are up around 7% so far this year.
They fell 0.3% on Thursday in a slightly firmer overall market. Analysts pointed to memory chip prices and the uncertain outlook for the fourth quarter for the muted response.
Analysts doubted Samsung's fourth-quarter earnings could beat third as memory chip prices hit rock bottom and a new Apple iPhone model is expected to hit the market.
The US rival Micron Technology Inc, which posted a quarterly profit in line with the market last month, forecast sales for the following quarter that were below expectations, as it had not yet received any new licenses for the sale of its memory chips to Huawei.
The market researcher Trendforce expected a decrease in DRAM chip prices of around 10% at the end of the year, as the demand in the server industry has not yet recovered noticeably.
This is also the case when Huawei competitors such as Xiaomi, OPPO and Vivo urgently stock up on key components, which in turn supports the market for mobile DRAM chips, according to Trendforce.
($ 1 = 1,157,3700 won)
(Reporting by Joyce Lee; Editing by Christopher Cushing, Richard Pullin, and Kim Coghill)
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