Samsung profits drop, worst may be over

Samsung is warning investors that its operating profit likely plunged 56% in the third quarter as the company continues to struggle with sluggish demand for memory chips. But analysts are predicting a turnaround for the company in the next year, helped by stronger sales of its smartphones and parts for rival device makers.

The South Korean technology giant said Tuesday that it expects to make an operating profit of 7.7 trillion Korean won ($6.5 billion) for the quarter that ended in September, down from 17.57 trillion Korean won ($14.7 billion) for the same period a year ago but higher than analysts’ estimates of 7.1 trillion won, according to data provider Refinitiv.

The company said it expects sales to fall 5% to 62 trillion won ($52 billion).

Shares in Samsung closed up 2.4% in Seoul.

Samsung’s profits have taken a beating over the past year, largely because of a slump in its memory chip business. But SK Kim, an analyst at brokerage firm Daiwa Capital Markets, said last month that he expects a boost in Samsung’s memory chip demand thanks to its advances in extreme ultraviolet lithography, a key breakthrough in chip manufacturing.

Samsung also has a huge business making components for rival device manufacturers. Analysts at Daishin Securities said in a note last week that the company’s memory chip and display businesses should show signs of growth thanks to new flagship phones from Apple and Huawei.

Samsung’s latest flagship phone, the Galaxy Note 10, should also “positively affect the company’s mobile business” for the quarter, thanks to “a favorable competitive landscape,” Daiwa analysts wrote in a recent note.

Samsung has benefited from the current troubles facing Huawei, the world’s largest telecommunications equipment maker and No. 2 smartphone seller.

Washington added Huawei to a trade blacklist in May, barring US companies from selling vital tech and components to the Chinese tech giant.

The US ban forced Huawei to launch its latest flagship phone, the Mate 30, without key Google services. Without access to popular apps like Google Maps and YouTube, Huawei phones become a lot less attractive to international users.

Research firm Canalys said in August that Samsung rocketed to 40% market share in Europe, its highest in five years.

“Samsung has been quick to capitalize on Huawei’s [US] problems, working behind the scenes to position itself as a stable alternative in conversations with important retailers and operators,” Canalys analyst Ben Stanton said at the time.

The US ban also put a dent in Huawei’s ambitions to dominate the global 5G smartphone market.

As the market gears up for the next generation of ultra-fast wireless technology, Daishin analysts predict Samsung will have the upper hand “as virtually the only 5G smartphone manufacturer in the world outside China.”

Samsung is expected to report full earnings at the end of the month.