Samsung Electronics rebounds in Q3 on chip recovery, strong mobile

Samsung Electronics beat market expectations in the third quarter helped by the solid performance of its mobile business division, according to the company's earnings guidance announced Wednesday.

Samsung Electronics' Seocho office in southern Seoul [NEWS1]

Samsung Electronics beat market expectations in the third quarter helped by the solid performance of its mobile business division, according to the company's earnings guidance announced Wednesday.

Its shares rose steeply by more than 4 percent in the morning upon the announcement, being traded at 69,200 won.

The Korean electronics giant logged 2.4 trillion won ($1.79 billion) in operating profit during the July-September period hovering over the market expectation of 2.1 trillion won compiled by the FnGuide.

The figure, however, is still 77.9 percent less than the same period last year as its chip business — a major cash cow for the electronics giant — still struggles from the global oversupply of semiconductors.

“Supply of memory chips could have been better, but the earnings were still positive on the back of the solid profitability of smartphones and displays,” Kim Sun-woo, analyst at Meritz Securities said.

The Korean chipmaker's revenue came to 67 trillion won, posting a 12.7 percent year-on-year drop. It slightly missed the market expectation of 67.9 trillion won.

The Wednesday announcement did not provide the breakdown.

Meritz Securities expected Samsung Electronics’ DS (Device Solutions), its chip business, to have posted an operating loss of 3.4 trillion won.

That is a reduced figure from the first and second quarters when the DS division posted operating losses of 4.6 trillion and then 4.4 trillion won.

Operating profit of the display and smartphone businesses were estimated to be 1.9 trillion won and 3.3 trillion won each, according to Meritz.

Samsung Electronics and other chipmakers suffered from a severe chip glut early this year derived from dwindling demand for electronics devices worldwide amid a slow economy and high interest rates.

Samsung Electronics belatedly resorted to cutting down its chip production in April after its operating profit nose-dived by 96 percent. Its rivals like SK hynix and Micron, however, had already cut production from the latter part of the previous year.

In July, Samsung Electronics announced additional production cuts of chips including the NAND flash chips.

Analysts expected the effect of the production cuts will take full effect from the fourth quarter of this year.

"Samsung Electronics' wafer input for DRAM is expected to have been reduced by 30 percent and NAND flash by 40 percent compared to the fourth quarter of 2022," said Han Dong-hee, analyst from SK Securities.

"The effect of the second production cut will take effect from the fourth quarter and the profitability of DRAM will also accelerate from there."

Prices of DDR4 and DDR5, two of the DRAM chip types, are forecast to increase by between 0 to 5 percent and by between 3 to 8 percent in the fourth quarter, according to data from TrendForce.

Samsung Electronics shares closed at 68,200 won, up by 2.71 percent from the previous trading day.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]