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Samsung Sees Chip Crunch Persisting After Profit Tops Estimates

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·4-min read
Samsung Sees Chip Crunch Persisting After Profit Tops Estimates
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(Bloomberg) -- Samsung Electronics Co. said the tight supply of chips that’s hurting industries worldwide is set to persist through next year, as it reported quarterly profit boosted by rising prices at its semiconductor business.

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The South Korean giant, both a major producer and consumer of chips that go into computers and mobile devices, said net income rose to 12.06 trillion won ($10.3 billion) in the three months ended September. Analysts predicted 11.54 trillion won on average, according to estimates compiled by Bloomberg. Samsung disclosed preliminary numbers earlier this month, including a more than 25% increase in operating profit.

The world’s biggest maker of memory chips and smartphones has benefited from strong demand as the global economy recovers from the Covid-19 pandemic, with a resulting shortage boosting semiconductor prices. While Samsung and its chipmaker rivals are spending more to add production capacity, the crunch isn’t abating soon as consumers and companies continue to invest in technology.

“The pandemic led global consumers to experience more online-based social activities and lifestyles -- which has been called the new normal -- and we think most of the demand of the new normal will persist as a fundamental part of our life,” JinMan Han, executive vice president of Samsung’s chip business, said on a conference call Thursday.

The company didn’t give forecasts for earnings or investment for 2022 because of uncertainties including supply bottlenecks and rising raw-material prices. Meanwhile, memory-chip prices may start to cool this quarter as customers are less anxious to place new orders after stockpiling inventories.

What Bloomberg Intelligence Says

“The growth in Korea’s DRAM chip exports may continue apace but prices may keep on weakening. The export value of DRAM in September rose 29% year-on-year to $3.78 billion, the highest since November 2018. However, spot prices often used in small transactions began sinking in August, and large contract prices may fall anytime soon.”

- Masahiro Wakasugi, BI analyst

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Samsung’s smartphone shipments and average selling prices rose from the previous quarter, helped by the launch of new Z series foldable models. The company predicted a decline in mobile device shipments for this quarter compared with the preceding three months.

Shares of Samsung were little changed at 12:54 p.m. in Seoul. They have lost more than 10% this year, with industry observers predicting the memory-chip market will see prices on the decline.

While Samsung is better known for smartphones outside of South Korea, its profits are largely driven by its memory-chip business. Semiconductors typically account for the largest slice of its income.

Server clients have built up their inventories, putting pressure on memory suppliers to reduce prices. Rival SK Hynix Inc. said Tuesday the supply flexibility has changed from the past as chip suppliers manage capacity in line with demand, echoing Micron Technology Inc.’s argument that the wide swings between shortages and gluts are moderating.

Still, chip suppliers remain optimistic demand won’t fall off. Samsung said the widely expected downturn for the memory market is unlikely to be as severe as prior such episodes. Advanced Micro Devices Inc. Chief Executive Officer Lisa Su gave a bullish outlook on Tuesday, predicting strong demand for server and console chips in 2022, while predicting a “flattish” PC market.

Macro risks such as an energy crisis in China, soaring commodity prices and tepid U.S. job data could prompt customers to curb orders. “Considering the risk of economic slowdowns in China and the U.S. as well as falling memory prices, Samsung’s earnings may slow down until the first half of next year,” said Lee Seung-woo, an analyst at Eugene Investment & Securities.

Samsung is preparing for a major technology shift to so-called DDR5 memory chips that are faster than the previous generation while improving power efficiency. Its 14nm DDR5 product is highly competitive and is set to be a boon for the company, said Kim Young-woo, an analyst at SK Securities. A prolonged delay in a new server processor that’d use DDR5 -- an Intel Corp. product codenamed Sapphire Rapids -- could affect demand, Kim said.

Samsung is also betting on a more advanced chipmaking process as a growth driver. Its foundry revenue is set to expand at an annual average rate of 24% until 2026, with growth this year reaching 30%, Daishin Securities forecasts. Samsung plans to start producing 3-nanometer chips in the first half, while industry leader Taiwan Semiconductor Manufacturing Co. expects to start mass manufacturing in the latter half of 2022.

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