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Samsung Q3 Profit Estimate At Record High, Market Expects Drop In Chip Price

Samsung Q3 Profit Estimate At Record High, Market Expects Drop In Chip Price
Robust demand for semiconductors from data centres and gains in production yields drove the estimated third-quarter operating profit for Samsung Electronics to increase by at least 20 per cent and reach a record high. 
However, the two year growth cycle for the chip industry was broken by significant price decreases for a few forms of chips. According to analysts, the third quarter would be the peak for the South Korean tech behemoth.
Analysts also do not expect a rebound of the smartphone business of Samsung because of higher marketing costs and tough competition from Chinese companies making cheaper mobiles,
According to Song Myung-sup, a senior analyst at HI Investment & Securities, “Falling chip prices will pressure profits while its smartphone shipments are not satisfactory and will continue to crimp margins."
But for now analysts have been impressed by the estimated results for the largest chip maker in the world in the third quarter. The company is expected to deliver according to market expectation with a 4.8 per cent increase in revenues resulting in a 20.4 per cent jump in its preliminary operating profit at 17.5 trillion won (US$15.5 billion).
The details of the earnings for the quarter would be disclosed later in October. .
About 80 per cent of the operating profit of Samsung Electronics is accounted for by its chip business and the company has seen very high growth in its chip business in the last two years propelled by a growth in the number of data centres for cloud computing which demanded more chips. This also increased the prices for its DRAM chips. The main memory product for data centres where multiple tasks are required to be performed by a chip are the DRAM chips.
The company has also bettered its production technology which has allowed the company to churn out more chips smaller in size for every silicon wafer.
But with supply overdoing demand, there has been a global drop in the prices of NAND chips which are put to use for storing data for long periods of time. Analysts expect that ere would also soon be a drop in the prices for DRAM even though at a much lower rate compared to the NAND ones. Some analysts however believe that the market would be supported by demand growth in Chinese data centre
But according to Refinitiv data, despite the anticipated drop in prices for chips, a good operating profit of about 12 per cent is expected to be reported by Samsung for the fourth quarter. But analysts expect a much smaller profit growth form the company in the first quarter of 2019 and then decline in growth of profits for the two subsequent quarters
However, there is an overwhelming expectation among analysts that the company would report dismal performance for its mobile business in the next two quarters despite the income growth of the company.
"Its mobile division will continue to look bad. Samsung's upcoming foldable phones are not going to be meaningful in terms of sales, more of a symbolic move in terms of innovation," said Park Sung-soon, an analyst at BNK Securities.

Christopher J. Mitchell

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