Samsung reports bumper profits but warns of slump ahead

Samsung reports bumper profits but warns of slump ahead. Samsung reported bumper profits on Thursday, but warned that things won’t be so ruddy in the coming months as smartphone competition increase and demand for memory chips slows.

FILE – In this June 8, 2020 file photo, Samsung Electronics Vice Chairman Lee Jae-yong arrives at the Seoul Central District Court in Seoul, South Korea. As Samsung Electronics mourns the death of its long-time chairman, Lee Kun-Hee, questions loom over what’s next for South Korea’s biggest company. Samsung has struggled for years to diversify from its core hardware business to tap new technologies and services. (AP Photo/Ahn Young-joon, File)

The South Korean conglomerate reported operating profit rose almost 60% to 12.35 trillion won ($10.9 billion) for the July-September quarter compared to a similar period last year. Analysts polled by data provider Refinitiv had predicted 11.1 trillion won ($9.8 billion) in operating profit.

Samsung said deals for the third quarter rose about 6% to 67 trillion won ($59 billion). Analysts polled by Refinitiv had predicted 64.7 trillion won in deals ($57 billion).

Smartphone deals for the quarter were 29.81 trillion won ($26.3 billion), up 6% from a similar period last year. That also represents a jump of 51% from the previous quarter, when the Covid-19 pandemic wreaked destruction on the smartphone industry. The business bump suggests Samsung will soon retake its position as the world’s top smartphone vender from embattled Chinese rival Huawei.

But looking ahead, the company said it expects profit to decline in the fourth quarter, driven by weakening demand from worker customers for memory chips. It added that it also expects smartphone deals to decline and marketing costs to increase because of the competitive market environment. Rival smartphone creator Apple (AAPL) launched its highly anticipated iPhone 12, its first 5G enabled device, this month.

Shares in Samsung were last trading down 2.2% in Seoul, outpacing declines in South Korea’s (KOSPI). The income report comes shortly after the death of Lee Kun-hee — the business titan who led Samsung’s ascent from a modest South Korean company to a multinational conglomerate. Lee died on Sunday at the age of 78.

Lee’s son, Lee Jae-yong, has been the company’s de facto leader since his father’s heart attack in 2014. Asked earlier this week about whether the vice chairman would take his father’s title as chairman, Samsung declined to comment.

“While we assume JY Lee … will take the chairman’s role, we don’t expect a meaningful change in group ownership structure, management and business operation for Samsung in the short term given uncertainties from [an] ongoing trial issue and potential new regulation from the [South Korean] government,” analysts at brokerage firm Daiwa wrote in a note on Tuesday.

The younger Lee was seen as liable of bribery and other corruption accusations in 2017 and served not exactly a year behind bars before an appeals court threw out some of the charges and suspended his sentence. Last month, the vice chairman was indicted over a controversial 2015 merger that helped him tighten control over the company.

Despite the legal troubles, Daiwa analysts said they “expect JY Lee and top management to actively search for [merger and acquisition] opportunities to secure the company’s long-term profit growth momentum” and improve the company’s an incentive beyond the period of chairman Lee.

Samsung is one of the world’s top chipmaking companies. But the semiconductor industry has been rapidly consolidating, driven by the high research and development and capital costs required to stay at the cutting edge of chipmaking.

Samsung rival SK Hynix announced this month that it’s buying part of Intel’s memory chip making business for $9 billion. And AMD on Tuesday agreed to buy rival chipmaker Xilinx in a $35 billion deal.

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