Chip Business Downturn Forecast in Q4
Samsung Electronics’ preliminary Q3 financial results announced on Oct. 5 showed the power of semiconductors, or device solutions, once again. Calming concerns over the peaking of the semiconductor boom, the company posted some 13 trillion won (US$11.5 billion) in operating profit in the semiconductor business, accounting for about 80 percent of the record quarterly operating profit of 17.5 trillion won (US$15.48 billion) in the third quarter. The electronics giant saw its operating profit reach a new record high again in one quarter after its seventh straight record quarterly profit stopped at the previous quarter.
However, Samsung Electronics is not without its problems. Market experts expect that the company’s operating profit from the semiconductor business will drop in the 4th quarter for the first time in 11 quarters. In addition, the smartphone business of the IT & Mobile Communications (IM) Division has gone into a downturn and the home appliance business of the Consumer Electronics (CE) Division has been sluggish. In the smartphone business, the company has failed to seize a chance to flip the situation as it is sandwiched between the rapid growth of China’s “big four” producers – Huawei, Oppo, Vivo and Xiaomi – and the Apple fandom.
Samsung Electronics’ operating profit in the third is quarter is nearly 2 trillion won (US$1.77 billion) higher than the previous record of 15.64 trillion won (US$13.83 billion) set in the first quarter of this year. The increase is almost the same as the figure of the semiconductor business’ operating profit increase, which grew from 11.61 trillion won (US$10.27 billion) in the second quarter to some 13 trillion won (US$11.5 billion) in the third quarter. It means that the growth of semiconductor profits has led to the increase in total operating profits. As the market for semiconductor chips has been diversified to smartphones, data centers, cloud platforms and personal computers, concerns over a supply glut caused by the drop in fixed price of NAND flash memory chips has been tampered down as well. Kim Sun-woo, a researcher at Meritz Securities, said, “The flow of selling prices of memory chips during the quarter is slightly lower than expected but the sales volume of DRAM products is highly likely to grow more than 10 percent.”
Samsung Electronics’ display business, which suffered from a slump in the first half of this year, has also shown a remarkable recovery. With the release of Apple’s new iPhone, it is clearly bouncing back mainly in small and mid-size organic light-emitting diodes (OLED) panels. The market expects that the company’s display operating profits in the third quarter will reach 1 trillion won (US$884.56 million). It shows almost a vertical rise compared to some 100 billion won (US$88.46 million) of operating profits at the previous quarter.
The company’ set business still seems to have difficulty in seeking an outlet. The IM Division, whose main business is smartphone, is expected to post 2.2 trillion to 2.3 trillion won (US$1.95 billion to 2.03 billion) in operating profit. As the Galaxy S9 has failed to put up a good show, figure will fall short of 2.6 trillion won (US$2.3 billion) at the previous quarter. Yoo Jong-woo, an analyst at Korea Investment & Securities Co., said, “Samsung Electronics improved the hardware specs but failed to reflect the rise in component costs enough in retail prices due to the increased competition with Chinese companies. In addition, the smartphone market has been stagnating. The sales of the Galaxy Note 9 during the first month of the launch also remained at the 65 percent level of the previous model.” The market thinks that the new demand will be created in the mobile device market only when foldable smartphones are to be released next year
In contrast, the CE Division is forecast to have some 700 billion won (US$619.2 million) of operating profits, which is little higher than the previous quarter. This is largely due to the sales growth from the peak season of televisions and air conditioners.
Samsung Electronics has shown better results than expectations but it is hard to have a sense of security because market experts say that the semiconductor boom has already passed. According to market research firm DRAMeXchange, the fixed price of DRAM chips will decrease about 5 percent in the fourth quarter compared to a quarter earlier. The figure is worse than the previous drop of 1 to 2 percent. In particular, it is expected to plunge by 15 to 20 percent next year. HI Investment & Securities Co. also said that the price of DRAM and NAND flash memory chips would fall 5 percent and 12 percent, respectively, in the fourth quarter.
To be sure, many experts still say that the price of memory chips is unlikely to take a nosedive. Since the upstream and downstream industries of semiconductors are still in good shape, the demand of memory chips as a component will not drop sharply. Park Sung-soon, an analyst at BNK Securities Co., said, “Samsung Electronics is forecast to conservatively make an investment in DRAM facilities next year. So, the possibility of the sharp decline in memory chip prices is a bit exaggerated even when China supplies DRAMs to the market.”