Samsung bullish on chip demand as shortages set to continue

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Samsung Electronics Co Ltd updates

Samsung Electronics said it was bullish on prospects for its crucial semiconductor business in the second half of the year, but warned of growing supply chain risks due to a resurgence in Covid-19.

The projection came after the South Korean technology group reported a 73 per cent year-on-year jump in second quarter net profit to Won9.6tn ($8.4bn) as strong demand for electronics prolonged a global chip shortage.

“For the second half, market conditions are expected to be favourable for the component business,” the company said on Thursday. “However, risks of continued disruptions in component supply and uncertainties related to Covid-19 are likely to persist.”

The world’s biggest producer of memory chips, smartphones and electronic displays reported a sharp year-on-year increase in all of its main businesses. But it faces growing supply chain risks in Vietnam — an important production base for smartphones and home appliances.

Samsung was forced to cut production at one of its consumer electronics factories in Ho Chi Minh City earlier this month while its smartphone production was also disrupted.

Operating profit at its semiconductor business rose 28 per cent from a year earlier to Won6.9tn, accounting for more than half of the company’s total profit, as data centre operators and PC makers rushed to secure inventories. The company said its memory chip inventory had fallen to “significantly low levels”.

Analysts expect chip shortages to continue in the second half but believe the industry has passed the worst of the crunch. “Samsung’s earnings will increase further in the third quarter as the memory boom continues,” said CW Chung, head of research at Nomura in Seoul. “Chip prices will continue to rise in the second half although the pace of increase is likely to slow.”

Samsung has for decades dominated production of Dram and Nand chips. Kim Young-woo, an analyst at SK Securities, expects Dram prices to rise 12-15 per cent in the second half while Nand prices are forecast to increase 7-11 per cent. Dram enables short-term storage for graphic, mobile and server chips, while Nand allows for files and data to be stored without power.

But Samsung’s smartphone sales fell 24 per cent from the previous quarter due to chip shortages and supply chain disruptions. Apple, Samsung’s rival, reported that iPhone sales surged 50 per cent in the April to June quarter with the US company shrugging off the worst of the chip shortages.

However, Samsung expects mobile sales to increase in the second half as it plans to launch new foldable phones next month. The company also expects its mobile display business to improve earnings in the second half as its large customers, including Apple, launch new flagship models.

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