Samsung Electronics Q1 profit tops market expectations on solid chip demand

Highlights:

• Solid server demand, rush order boost memory chips - analyst
• Co sees brisk mobile sales led by flagship smartphone - analysts
• Samsung to announce full Q1 earnings in April 28

Samsung Electronics Co Ltd reported on Thursday an estimated 50% jump in quarterly operating earnings to post its highest first-quarter profit since 2018, beating expectations as solid demand underpinned prices for memory chips.

Earnings at the world's largest memory chip and smartphone maker were also supported by brisk smartphone sales in the quarter, along with a disruption at a rival NAND Flash chip plant, analysts said.

Samsung put its first-quarter profit at 14.1 trillion won ($11.6 billion) in a preliminary earnings release, versus a Refinitiv SmartEstimate of 13.3 trillion won. Revenue likely rose 18% from the same period a year earlier to a record 77 trillion won, also above market expectations.

"The guidance beat market expectations, probably due to memory chip shipments and prices being better than expected," said Park Sung-soon, analyst at Cape Investment & Securities.

Although memory chip prices dipped in the first quarter, analysts said solid demand from data centre clients as well as cautious investment spending by chipmakers and limited capacity expansion buoyed Samsung's chip earnings, which make up about half of its total profits.

The chipmaker also likely benefited from a disruption at a rival NAND Flash chip plant owned by Japan's Kioxia and American firm Western Digital due to contamination of raw materials.

"After the contamination issue at Kioxia, I think there were rush orders for NAND Flash chips made to Samsung for products that were meant to be secured from Kioxia," Park said.

The disruption at the Kioxia plant in early February is expected to drive up NAND Flash prices by 5%-10%, offsetting the effects of modestly high inventories maintained by buyers, data provider TrendForce said. 

Samsung shipped an estimated 72 million smartphones in the first quarter, Counterpoint Research said, down some 11% from a year earlier, mostly due to a later than usual release of its newest flagship smartphone, the Galaxy S22.

The Galaxy S22 series globally sold some 50% more in the first week after its late February launch than its previous model S21, according to Sujeong Lim, an associate director at Counterpoint.

Samsung is estimated to have shipped slightly over 6 million units of the S22 series by the end of March, Lim said, adding that sales were in line with initial expectations.

Samsung is due to release detailed earnings on April 28, when investors will be interested to hear any comments on its M&A plans, how it plans to operate its memory chip business to boost profitability, and chip demand outlook.

Samsung shares fell 0.2% in morning trade, versus a 0.9% drop in the wider market.