Samsung foresees bigger profit in 2017 as memory chips soar

SEOUL, South Korea >> Samsung Electronics reported its best quarterly profit in more than three years Thursday and forecast improvement for the full year as its semiconductor division posted its highest income ever.

The South Korean company’s stellar financial results beat expectations and reflect its ability to overcome the fiasco over its Galaxy Note 7s, which it pulled from the market when its batteries were found to be prone to overheating. That cost Samsung at least $5 billion.

The secrets to its crisis-defying performance: microchips.

“The semiconductor business will continue to see a boom for at least a year ahead and its earnings result is on a roll,” said Park Ju-gun, chief executive at CEO Score, a private corporate watchdog.

Samsung Electronics is the world’s largest memory chipmaker and second-largest semiconductor company after Intel. Its semiconductor department generated $5.6 billion in operating income during the first three months of this year, more than double a year earlier.

So nearly two-thirds of Samsung’s operating income during the first quarter was generated by its semiconductor business.

The first quarter is typically a slow season for chipmakers but market circumstances were especially favorable for companies like Samsung that are positioned to quickly and efficiently mass produce microchips.

Global supplies were tight and consumer demand for more sophisticated and high-density mobile devices that can quickly multitask and process more images, videos and other data was strong. Data centers around the world are also handling growing amounts of data, with more and more gadgets connected to the internet.

The tight supplies and solid demand, pushed prices for Samsung’s key microchip products called NAND and DRAM up sharply, giving it fat margins. Such market conditions are unlikely to change in coming months, so analysts expect Samsung to rake in its best ever earnings in 2017.

For the January-March period, Samsung’s profit jumped 46 percent over a year earlier to 7.7 trillion won ($6.8 billion), compared with 5.3 trillion won a year earlier.

According to data provider FactSet, analysts had expected a net income of 7.1 trillion won. Sales rose just 2 percent over a year earlier while operating profit surged 48 percent to 9.9 trillion won ($8.7 billion).

For the full year, Samsung said its components business such as memory chips and mobile-phone screens known as OLED will drive profits. Samsung is betting on the Galaxy S8 smartphone, which uses curved OLED screens that wrap around its corners. The S8 and S8 Plus with larger screens went on sale last week with strong pre-orders.

Samsung is still facing some acute headaches.

Five of its top executives, including Lee Jae-yong, the de-facto leader and the only son of its chairman, were indicted on corruption charges in a political scandal that brought on months of public protests and resulted in the ouster of the South Korean president. The trial is expected to continue for several months.

The Galaxy S8 smartphones has gotten favorable initial reviews, though some consumers complained that the screen appeared to have a pink hue. Samsung said it was not a product quality issue and it will release a software update to allow subtle adjustments of screen colors.

Apart from its earnings, Samsung announced that after months of review it would not change the company’s structure into a holding company. It said such a change carried more risks than benefits.

That may disappoint investors who had thought such a change could boost share prices and increase transparency in dozens of Samsung businesses that are controlled by the Lee family despite owning only small stakes in each company, thanks to a web of complicated cross-shareholdings.

Concern over transparency in the chaebol, as big South Korean family-controlled businesses are known, has intensified with the scandal over political donations that resulted in the indictments of Lee and other top executives.

In a separate announcement, Samsung said that it would cancel treasury shares valued more than 40 trillion won ($35 billion). That will improve share prices and ease worries that those shares might have been used for the benefit of the Lee family, rather than for all shareholders.