Samsung Forecasts Brighter Chip Outlook -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 30, 2020).

SEOUL -- Samsung Electronics Co. (SSNLF) reported a 39% drop in fourth-quarter net profit but projected improved market conditions in 2020, as the chip industry starts to pull out of a protracted slump.

The South Korean company reported a quarterly net profit of 5.2 trillion won ($4.4 billion) for the last three months of 2019, versus 8.46 trillion won the prior year. The decline was somewhat less dramatic than the third quarter's 52% slide.

Samsung, the world's largest memory-chip maker, posted revenue of 59.9 trillion won, a 1.1% increase from a year earlier.

Earlier this month, Samsung forecast results that beat analysts' estimates, which had been weighed down over the past year by a semiconductor glut and the U.S.-China trade fight. Since then, other chip makers, including Intel Corp. and Taiwan Semiconductor Manufacturing Co., the world's largest contract semiconductor maker, have delivered robust results and forecasts, raising expectations for 2020.

Samsung, based in Suwon, South Korea, has also been shielded somewhat from Trump administration restrictions on U.S. companies' doing business with China's Huawei Technologies Co. On Tuesday, U.S. chip maker Xilinx Inc. said it planned to cut about 7% of its workforce, pointing to lost business with Huawei and lax adoption of superfast 5G networks.

Samsung weathered challenges in 2019 from a global slump in memory-chip demand that ended a string of record profits. Net profit bottomed out in the first quarter, reaching its lowest point since 2016's global recall of Galaxy Note 7 smartphones. Operating profit in 2019 was down by nearly half from its peak in 2018.

The company, which generated about 75% of operating profit from semiconductors in 2018, started showing signs of a rebound in the second half of 2019, as memory-chip prices rose and smartphone sales came in better than expected.

Investors had bet on a turnaround earlier than that. In 2019, Samsung shares rose 44%, alongside those of rivals Micron Technology Co. and SK Hynix Inc. Shares of Samsung continued to hit highs this month after the company reported preliminary results for the fourth quarter.

Samsung, the world's largest smartphone maker, will unveil a new high-end lineup next month, and a bolder consumer embrace of 5G phones could boost sales. Huawei and Samsung are the top sellers of 5G phones, accounting for nearly three-quarters of the 18.7 million shipped out in 2019, according to Strategy Analytics, a market researcher.

Several demand drivers for memory chips are lined up for 2020, including the rollout of 5G-enabled phones and the planned launch of Microsoft Corp.'s new Xbox game console.

"We're seeing increasing demand from data-center customers," Han Jin-man, senior vice president of Samsung's semiconductor business, said on Thursday's earnings call. "But we'll have to see whether this trend of growing demand will continue into the second half of the year."

Most analysts expect the recovery to continue in 2020, but not reach the levels of 2017 and 2018.

"There's a lot of positive momentum, but also factors that can damp that, " said Park Jun-hong, an analyst at S&P Global Ratings in Hong Kong.

The U.S.-China trade agreement hasn't done enough to reassure global markets, he said. It retains tariffs for later negotiations to deal with.

In China, coronavirus is raising concerns around production challenges and consumer demand. About 50% of the world's memory chips are shipped to China for domestic and export use by companies both Chinese and foreign, according to Kim Nam-hyung, an analyst at Arete Research in Los Angeles.

"China is the world's No. 1 market for smartphones and TVs, and the No. 2 market for PCs," said Mr. Kim. "If consumer demand dries up there, it can create a huge shock."

Earlier this week, Apple Inc.'s chief executive said some factories in China, where the company has a huge production base, have pushed back plans to reopen after the Lunar New Year by more than a week due to the outbreak.

Samsung manufactures its consumer electronics, display panels and some of its NAND memory chips in China. A company spokeswoman said the postholiday reopenings of some plants there have likewise been postponed, in line with Chinese government policy.

Separately on Thursday, Samsung said in regulatory filings that it will adopt electronic voting in its shareholder meetings.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com


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  01-30-20 0247ET
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