The South Korean’s net profit climbed 7.3% in the second quarter due to high demand for memories in data centers during the lockdown.
South Korea’s Samsung Electronics on Thursday reported net profit up 7.3% in the second quarter, benefiting from strong demand for memories in data centers, due to the surge in online activities related to lockdowns.
The world’s number one smartphone and memory company posted a net profit of 5,560 billion won (4.3 billion francs) between April and June. Meanwhile, its operating profit rose 23.48% to 8,150 billion won, even as revenue fell 5.6% to 53,000 billion won.
Samsung Electronics is the flagship of the Samsung group, which is by far the largest of the conglomerates (“chaebols”) which dominate the world’s 12th largest economy. In this context, the good health of Samsung Electronics is crucial for South Korea.
The coronavirus outbreak has wreaked havoc on economies around the world and South Korea has not been spared, entering recession for the first time in 17 years amid a collapse in exports.
The South Korean economy is very dependent on international trade, yet its exports fell 13.6% year on year in the second quarter, the largest drop since 1974.
Chips and screens
But the containment measures imposed in many countries, especially in the United States and Europe, have boosted demand for chips, data centers being greedy in DRAM memories to cope with the increase in online activities.
“The spread of Covid-19 has resulted in closures and slowdowns in business in stores and production sites around the world but the company has risen to the challenge with its vast global supply chain,” says Samsung Electronics in a statement.
The impact of the pandemic has also been limited thanks to “the strengthening of online sales channels and cost optimization,” he adds.
Samsung’s global revenue represents one-fifth of the country’s Gross Domestic Product (GDP).
Experts expect sales of Samsung’s chips and displays to continue to grow.
Diplomatic and military tensions between Delhi and Beijing could also do business for the South Korean group, according to analysts, who believe that Indian consumers may have the reflex to turn away from Chinese brands to fall back on Samsung products.
Anti-Chinese reflex in India
“Growth will probably be driven by the chip and display business, two products in high demand during the containment phases,” Prachir Singh, analyst at Counterpoint, told AFP.
“There is unmet demand in India as the country recovers from containment,” he added. “But there is certainly an anti-Chinese sentiment in the minds of Indian consumers, which Samsung will likely benefit from.”
As for smartphones, Samsung had taken a 20% market share in the first quarter, far ahead of its competitors Huawei (17%) and Apple (14%), according to Counterpoint.
Global sales were down more than 20% year on year in the first quarter, which was their worst performance on record, according to the Gartner company, due to the impact of the pandemic on consumption.
The outlook for the second half of the year remains uncertain “because while lockdowns in some countries are being lifted, there is a resurgence of cases in some countries,” said Gloria Tsuen, of Moody’s Investors Service.
Competition will intensify as manufacturers will want to compensate for the poor performance of the first half, she said.
Another uncertainty for Samsung Electronics, its vice-president Lee Jae-yong, the heir to the group, is currently being tried again in the framework of the resounding corruption scandal which had caused the impeachment and imprisonment of the former South Korean president. Park Geun-hye.
He appears free. But a possible conviction could deprive the group of its first decision maker.
Samsung Electronics stock rose 1.69% Thursday morning.