Samsung shares soar due to strong memory demand

Samsung Electronics Co. posted better-than-expected earnings and projected a gradual recovery in the memory chip market in 2020 as fifth-generation wireless technology rolls out globally.

Shares in South Korea’s largest company climbed as much as 2% after it posted net income of 6.1 trillion won ($5.2 billion) for the September quarter, surpassing the 5.5 trillion won average of projections.

Samsung, which reported a 56% slump in operating profit earlier this month, said it expects memory chip demand to gradually climb out of its funk in the fourth quarter and bounce back next year. The company foresees capital spending of 29 trillion won in 2019, about the same level as it was last year.

Memory chip prices have stabilized and risen in part for seasonal reasons and in part because clients are buying to hedge against global macroeconomic uncertainty, said Samsung.

Chipmakers such as SK Hynix Inc. have recently said the industry is bottoming out and is now on the verge of an upturn thanks to the adoption of new technologies such as fifth-generation networking.

“We are seeing an improvement in the chip industry,” Kim Woon-ho, an analyst at IBK Securities Co., said in an Oct. 22 note. “It is expected that the DRAM prices will start to recover in the third quarter of 2020. We project a big jump in demand for server chips, while Fold models will become a new factor.”

What Bloomberg Intelligence Says

Samsung’s semiconductor profit will likely keep falling through early next year, despite optimism surrounding an upturn in the memory cycle.

–Anthea Lai, TMT analyst.

Samsung’s smartphone business, which has weathered a series of setbacks in recent years, remained strong in the quarter, accruing 85 million unit sales in the third quarter.

The recent Galaxy Note 10 flagship exceeded the sales of the previous year’s Note in the same period by “double digits,” according to the company, however Samsung is forecasting profitability of its mobile business will decline in the current quarter as it’ll need to ramp up marketing to prop up demand.

The troubles faced by rival Huawei Technologies Co. in international markets have helped bolster Samsung’s mobile sales, with Counterpoint Research indicating that Samsung is absorbing Android users in major European countries, South America and the Middle East.

Apple Inc.’s in-demand iPhone 11 is revitalizing demand for the Korean company’s most advanced displays. Samsung notes a “sustained drop in average selling price and demand for TV panels,” however its smaller smartphone displays are keeping that division buoyant and the company predicts robust demand as consumers look to upgrade their devices.

5G networking will help drive an upgrade cycle, says Samsung, and the rapid move to 5G in its home market has already contributed to its bottom line.

Samsung shares have risen more than 30% this year, while the benchmark KOSPI has inched up 2%.

Samsung shares rose on expectations of profit improvement

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Samsung shares soar due to strong memory demand