Samsung's Symptom-Less Earnings Don't Make It Immune

(Bloomberg Opinion) -- Earnings released early Tuesday by Samsung Electronics Co. show that the technology giant dodged any major impact from the Covid-19 pandemic. Expect that to change.

Revenue growth was the strongest in six quarters, though 5% is hardly stellar. And while it was in line with estimates, analysts had been trimming expectations over the past few months. That also applies to the better-than-forecast operating profit, with analysts having lowered the bar in recent weeks.

Investors should also note that earnings are reported in Korean won. Samsung’s numbers may have been helped by the fact that the won weakened 6.1% against the U.S. dollar in the quarter, the most in more than four years (the currency swung wildly during the period, so the company’s average exchange rate may have been different).

With the coronavirus having shut down swathes of the global economy, any growth is to be lauded. Peers including Apple Inc. aren’t likely to have performed as well.

But don’t be fooled into thinking that Samsung is in the clear. Much of the strength during the period probably came from its chip business, driven by the needs of internet companies like web-conferencing provider Zoom Video Communications Inc. These have had to boost server capacity to cope with higher demand from employees forced to work from home amid the pandemic.

More than 40% of Samsung’s revenue comes from handsets. This sector was already looking lackluster before the coronavirus outbreak. Now, with the U.S. having reported an astonishing 10 million new jobless claims within two weeks, much of Europe on lockdown, and most of Asia in varying degrees of economic strife, it’s unlikely that consumers are eager to pony up for a flashy new smartphone.

Apple’s largest supplier has already felt the pinch. On Monday, its Taiwanese assembler Hon Hai Precision Industry Co. announced first-quarter revenue dropped 12%. While Apple accounts for half of Hon Hai’s sales, the other half comes from a broad collection of companies including Dell Technologies Inc., HP Inc. and Xiaomi Corp. It’s unlikely any of them will come through this economic downturn unscathed.

Samsung has the strength, and most importantly the cash, to ride out what will certainly be a tough few quarters for the global economy. That size doesn’t give it immunity.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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