Samsung profits from memory recovery but predicts challenges ahead

(Image credit: Samsung)

Samsung has warned investors that the ongoing uncertainty surrounding the coronavirus crisis will likely impact profits as sales of consumer electronics decline.

The warning slight took the gloss off of positive Q1 figures. Samsung operating profits rose by 3 per cent to 6.4 trillion won (£4.3bn) as the market for memory chips finally started to show signs of life. The profits were achieved despite sales of 55.3 trillion won (£36.6bn) – a 7.6 per cent year-on-year decline.  

Memory chips have traditionally accounted for two thirds of Samsung’s profits, but a crash in the market had resulted in a number of tricky quarters.

Samsung Q1 results

A revival had been expected prior to the outbreak of Covid-19, but sales have been boosted by increased demand for PCs due to remote working and for servers as cloud service providers seek to add additional capacity.

The market for memory is expected to stay strong during the crisis, even accounting for a fall in smartphone purchases. However overall earnings are expected to fall as the full impact of the coronavirus takes hold.

Samsung’s mobile division performed well in Q1 thanks to the launch of new devices like the Samsung Galaxy S20, but sales are expected to fall as customers delay purchases and supply chains are affected. This will have a knock-on effect on Samsung’s components business. As well as being the world’s biggest phone manufacturer, the company is a major supplier to the industry.

Global smartphone sales have been hit by government restrictions on people’s movement while the supply chain has been affected by factory closures. Just 61.8 million devices were sold in February 2020, down from 99.2 million last year. This 38 per cent decline is the biggest fall off in smartphone market history.

“In the second half, uncertainties driven by COVID-19 will persist as the duration and impact of the pandemic remain unknown,” said Samsung. “The company plans to focus on optimizing resource allocation in the short term, while continuing to strengthen its technology leadership and develop innovative set products.”

Ahead of what could be an unusual second half of the year, Samsung said it would look to support its memory business through flexible approaches to investments and products. Its OLED display business, which will be hit by reduced demand from devices, will look towards new areas like foldables. Recent research suggests the market for foldable AMOLED displays will increase fivefold this year.

Meanwhile, the mobile business will press ahead with development of premium handsets and affordable 5G devices with the aim of taking advantage of a revived market in 2021.

Steve McCaskill is TechRadar Pro's resident mobile industry expert, covering all aspects of the UK and global news, from operators to service providers and everything in between. He is a former editor of Silicon UK and journalist with over a decade's experience in the technology industry, writing about technology, in particular, telecoms, mobile and sports tech, sports, video games and media.