SEOUL (Oct 31): Samsung Electronics Co. reported earnings that beat estimates after solid demand for its smartphones and displays for the latest iPhone cushioned a slide in its memory chip business.

Net income came in at 6.1 trillion won ($5.2 billion) for the three months ended September, compared with 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 in 2020. The company foresees capital
spending of 29 trillion won in 2019, about level with last year.

Profits at the world’s largest producer of chips and mobile devices are expected to improve as the memory industry climbs out of a protracted downturn. Its smartphone business, which has weathered a series of setbacks in past years, is benefiting from Huawei Technologies Co.’s woes abroad, while Apple Inc.’s in-demand iPhone 11 is revitalizing demand for Samsung’s most advanced displays.

“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.”

Operating profit at Samsung’s chip division plummeted 78% to 3.1 trillion won in the quarter. But prices of DRAM and NAND memory have stabilized because clients are buying ahead of U.S. tariffs and to avert the potential impact on manufacturing from a spat between South Korea and Japan. Chipmakers such as SK Hynix Inc. have said the industry is bottoming out and on the verge of an upturn thanks to the adoption of new technologies
such as fifth-generation wireless or 5G.

The transition to 5G has become a silver lining for the tech industry, potentially galvanizing demand not just for smartphones but also for the advanced memory chips that process the abundant information inherent in connected devices from cars to robots.

“The semiconductor industry is undergoing a brutal downturn in 2019 — a drop so powerful that it can only be ended by an even more formidable force: the massive economic impact exerted by the deployment of 5G technology,” IHS Markit wrote in an Oct. 8 note.

The mobile division of the world’s largest smartphone maker reported a 32% jump in operating income, while its display arm posted a 6.4% rise in profit. Samsung is absorbing Android users in major European countries, South America and the Middle East, according to Counterpoint Research, in part at the expense of Huawei. 

High-end models such as the Note 10 and Galaxy Fold should also boost profits at Samsung’s mobile business. Samsung shares have risen more than 30% this year, while the benchmark KOSPI inched up 2%.