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Samsung Electronics profits rise as coronavirus spurs chip demand

Remote working and social distancing give short term boost but uncertainty lingers.

Photo by Jonas Leupe on Unsplash Photo by Jonas Leupe on Unsplash

Samsung Electronics managed to weather the coronavirus pandemic in the second quarter thanks to rising demand for server chips as countries around the world adopt social distancing and remote working measures.

The world’s largest memory chipmaker said in earnings guidance on Tuesday that operating profit jumped 22.7% to KRW 8.1 trillion (USD 6.8 billion) in the April-to-June quarter from a year ago, despite revenue falling 7.4% to KRW 52 trillion. The improvement in operating profit came from rising chip prices during the period. Full results for the quarter will be released later this month.

“Samsung Electronics’ recovery from COVID-19 has been evident since mid-May,” said CW Chung, a senior analyst at Nomura. “We believe demand for cloud-based services, which surged following the lockdowns, is likely to slow in the near term, whereas demand for smartphones, TVs, home appliances and autos, which declined significantly due to lockdowns, is now recovering quickly.”

But Chung was cautious about predicting the company’s earnings in the third quarter due to growing concerns about a second wave of COVID-19 infections. The number of daily cases is hitting new highs in the US and other countries as they lift lockdowns.

China digest

Eoh Kyu-jin, an analyst at DB Financial Investment, expects Samsung Electronics’ earnings to improve in the long term in response to the coronavirus. “We expect the trend toward non-contact information technology to continue. Samsung, led by its semiconductors, will enjoy stable and long-term improvement in its earnings,” Eoh said.

Prosecutors are investigating Samsung Electronics Vice Chairman Lee Jae-yong over alleged market manipulation dating back to 2015. Prosecutors will decide whether to indict the Samsung heir soon as they are set to complete their 19-month investigation into the case. They sought an arrest warrant for Lee last month, but the court declined to grant it, it saying there was no need to arrest him.

Lee, 52, has visited a wide range of company operations over the last few months, including one in Xian, China, in an attempt to show that he is fully engaged in the business as it grapples with the pandemic. In South Korea, business leaders have often been granted immunity from criminal charges thanks to their contribution to the national economy.

Regardless of the heir’s fate, employees of the company will enjoy bonuses thanks to the better-than-expected performance. Workers with the device solutions department, which includes the memory chip, foundry and logic chip businesses, will be given bonuses worth 100% of their basic monthly wage. By contrast, the company will pay workers in the mobile and consumer electronics divisions a bonus of three-quarters of their normal monthly wages because they failed to reach their half-year targets due to the lockdowns.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.