Samsung Electronics forecasts Q3 rebound

Samsung Electronics' office building in Seoul (Yonhap)

Samsung Electronics predicted Wednesday that its operating profits in the July-September period would recover to exceed 2 trillion won ($1.5 billion) after months of efforts to elevate profitability amid memory chip slump.

Samsung's third-quarter operating profits is estimated to hit 2.4 trillion won, a 77.9 percent plunge from a year ago, according to the company’s earnings guidance. The figure exceeded the 2.2 trillion won consensus by local analysts provided by market intelligence firm FnGuide.

It will likely mark the first time this year that the company sees at least a trillion won in quarterly profits. The firm's earnings struggled in the first and second quarters, logging 640 billion won and 670 billion won, respectively.

Third-quarter sales are estimated to decline 12.7 percent on-year to 67 trillion won. Yet the July-September figure soared 11.7 percent from the previous quarter’s 60.1 trillion won. The sales estimate was, however, lower than the consensus of 67.7 trillion won projected by FnGuide.

While Samsung did not release detailed performances of its key business units for Wednesday’s earnings guidance, market watchers expect its Device Solutions division, which oversees the chip business, will record a deficit of around 3 trillion won.

The size of the chip deficit will have decreased, from some 4 trillion won marked in the first and second quarters, according to their predictions. When the tech giant announced its earnings guidance for the January-March period in April, it officially announced that chip production had been cut to a “meaningful level” for the first time.

The narrowing deficit appears to be attributed to the meaningful profits earned from Samsung’s mobile and display units, thanks to the strong sales of the latest Galaxy Z Flip5 and Fold5 smartphones unveiled this July.

Korea Investment & Securities analyst Chae Min-sook said, “The main purpose of (Samsung’s) production cuts that have continued since the first half of the year is to reduce its inventory."

"The supply control effect resulting from the chip production cuts has already begun to appear, and the average selling price of DRAM will have turned upward starting from the third quarter," the analyst added.

The country’s bellwether stock jumped about 4 percent in early trading Wednesday as investors were boosted by the market’s rosy outlook and the company’s better-than-expected third-quarter results. Samsung's shared gained 2.71 percent to close at 68,200 won on the same day.

The world's largest memory chip and smartphone maker will release a detailed third-quarter earnings report on Oct. 31.

By Jie Ye-eun(yeeun@heraldcorp.com)