Samsung profit swells, but phone sales a worry

SEOUL–Robust sales of memory chips and displays helped generate another record profit for Samsung Electronics Co. in the third quarter, but the company’s outlook isn’t looking nearly as bright.

The world’s largest maker of smartphones and semiconductors Wednesday said it logged a third-quarter net profit of 13.15 trillion South Korean won ($11.5 billion), an all-time high and a gain of 18% from 11.19 trillion won a year earlier.

The Suwon, South Korea-based company’s revenue rose to 65.5 trillion won during the three months ended Sept. 30, up from 62 trillion won a year earlier. Operating profit grew to 17.57 trillion won, up 21% from 14.53 trillion won.

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Analysts polled by S&P Global Market Intelligence had expected the company to post a net profit of 12.9 trillion won and revenue of 64.9 trillion won for the third quarter.

The company’s prior record net profit was 12.26 trillion won during the final three months of 2017.

Samsung, which ships one of every five smartphones globally, said mobile-division revenue dropped 10% to 24.91 trillion won, down from 27.69 trillion won a year earlier. Its mobile division profit nose-dived by a third.

In an earnings release, Samsung said smartphone shipments were flat and the profit drop was attributable to "increased promotional costs and a negative currency impact."

Consumers are balking at $1,000 phones and holding on to their devices longer than ever. But the South Korean technology giant was surprised this year by poor sales for its flagship Galaxy S9 handsets, a device marketed around its animated human emojis. To rejuvenate sales, Samsung moved up the release of its large-size Galaxy Note 9 to Aug. 24, weeks earlier than the prior-year model.

The company also said it is pressing forward on new handset designs or advances, including foldable-screen phones targeted for a release early next year, The Wall Street Journal reported in July. In its earnings release, Samsung said it would launch a foldable-screen device in 2019.

But as the mobile unit tries to recover, there are growing signs that the memory-chip boom, fueled by demand from data servers, gadgets and cryptocurrency miners, could be cooling.

In a reflection of its challenges, Samsung Electronics shares have slid about 17% this year, as investors fear the semiconductor shortage that powered the firm’s recent string of record profits may have peaked.

Prices for DRAM chips, which give devices multitasking speed, could fall 5% in the final three months of 2018 from the previous quarter. That would be the first drop in more than two years, according to DRAMeXchange, which tracks semiconductor prices. Next year, prices could tumble by another 15% to 20%, it said.

Prices of another type of memory chip, NAND, are already dropping and could lose another 25% to 30% next year, DRAMeXchange said. Samsung is the largest maker of DRAM and NAND chips.

Other chip makers around the world have recently signaled a downturn. SK Hynix Inc., a South Korean memory-chip maker, delivered record operating profits last week, but executives said they would scale back investment next year due to "global economic uncertainties."

Texas Instruments Inc., a U.S. maker of communications chips, said last week in an earnings statement it saw a slowdown in demand across most markets.

Write to Timothy W. Martin at [email protected]

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