Samsung Electronics flagged a 23% jump in operating profit for the second quarter of 2020, despite the year being nothing short of a financial plague. This jump was accredited to a one-time gain from the display business, which counts Apple as a customer, rising demand of smartphones and televisions, and a boom in the chip industry.
The South Korean company informed on Tuesday that it expects operating profit to increase by 23% to 8.1 trillion Korean won (about $6.8 billion) compared to an year ago, which puts the 6.4 trillion won estimate made by Refinitiv SmartEstimate to shame. The company claims that the sudden uptake in the display market, and Apple investing close to 1 trillion won, which is “making up for them not buying enough displays last year, is a big reason for the massive business done this quarter.
While revenue likely fell by 7% from the same time last year to 52 trillion won, this will still be regarded as a big win for South Korean giant.
However, this is not an indicator for the future quarters, as the payment was a “one time benefit,” and does not really translate to a flourishing display market.
Nonetheless, the announcement certainly helped Samsung’s shares, which rose more than 1% in early trading.
Industry experts suggest that while the display business played a huge role in Samsung’s optimistic outlook for Q2, there were some other characters at play as well. First and foremost, Covid 19 became a boon for the dying chips and memory industry, as it popularized the culture of working from home. And as basic economics suggests, when there’s an increase in demand, there’s an increase in price. Prices of DRAM chips soared, which is a sentence chip makers haven’t heard in years, including Samsung.
Last but not least, the smartphone and television business fared well too, due to factories opening up in different parts of the world and lower marketing costs.
However, if history has shown us anything, it’s that the chip industry isn’t one to maintain a hot streak. As data centre customers become concerned about stockpiling chips, given the resurgence of COVID-19 cases in the United States and other countries, the industry is expected to go back to the dark caves of flattening prices and increasing losses in the second half of the fiscal year.
It will be interesting to see the actual numbers when Samsung shares its earnings later this month, and how close the company’s estimate was.