Samsung Q2 earnings higher than expected amid Covid-19 disruption

30 Jul 2020172 Views

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While demand for smartphones dropped during the pandemic, Samsung exceeded expectations in the last quarter thanks to memory chips and appliances.

Today (30 July), South Korean tech giant Samsung released its latest earnings report, showing an increase in profits for the second quarter of 2020, despite disruption caused by the Covid-19 pandemic.

Although there was a 6pc drop in revenue compared to the same period last year, operating profit was up 23pc year-on-year to $6.84bn. The company said that earnings for the quarter were higher than initially expected, despite reduced sales of smartphones and other electronic devices.

Samsung said that as Covid-19 spread and caused closures and slowdowns at stores and production sites, the firm responded to these challenges through its “extensive global supply chain” to minimise the impact of the pandemic. It added that strengthening its online sales channels and optimising costs helped it to weather the first few months of the pandemic.

In its Q1 earnings report in April, Samsung had warned that sales of smartphones were likely to “decline significantly” as Covid-19 took its toll on demand and led to store and plant closures around the world.

‘Partial recovery’

Samsung attributed the rise in operating profit in Q2 to demand for memory chips and appliances, as well as a “one-off gain” at its display panel business. As reported by Bloomberg, this gain is understood to be a payment of approximately $924m from Apple after the US firm ordered fewer iPhone panels than expected.

Samsung said that a “partial recovery” in global demand began in May and offset some of the decline the firm had anticipated as a result of the pandemic.

Earnings from Samsung’s memory business improved, led by demand from data centres and PCs, although demand for mobile memory slowed. The company’s LSI business, which develops its mobile processors, reported lower earnings due to the weakness in the mobile market.

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With Samsung seeing a decline in demand for smartphones, a recent report said that Huawei has now topped the global smartphone market for the first time, overtaking its South Korean rival.

According to the Canalys report, Huawei shipped 55.8m smartphones in Q2 of 2020, marking a 5pc decrease on the same period last year, while Samsung shipped 53.7m devices, marking a 30pc decrease.

Despite weaker sales of smartphones, Samsung said that its mobile communications business reported solid profitability on marketing cost reductions and other cost optimisations. The consumer electronics division posted higher earnings over growing sales of appliances such as air conditioners and dryers, as well as premium TVs including QLED models.

Expectations for 2020

As Samsung looks ahead to the second half of 2020, it expects to see a gradual recovery in demand for mobile devices and other consumer electronics. The firm said that while risks remain due to “growing competition” and the persisting uncertainties of Covid-19, it plans to rely on flexible global supply chain management to stabilise the supply of devices for consumers.

In the second half of the year, Samsung expects demand for mobile and graphic memory to recover, driven by new smartphones and game consoles. The company said that it will focus on flexible and timely management of product mix and investment to meet changing demand for each application.

Samsung also plans to focus on expanding sales of key products, such as high-resolution sensors and 5G system-on-chips. It expects to see a “full-fledged rebound” in earnings from mobile displays and has plans to unveil new flagship smartphones in the coming months.

In addition to unveiling the new Galaxy Note and a foldable phone on 5 August at the Galaxy Unpacked event, Samsung said it also plans to expand sales of mid-tier models.

“The smartphone market is expected to witness intensifying competition amid a gradual recovery in demand in the second half of the year,” it said.

Kelly Earley was a journalist with Siliconrepublic.com

editorial@siliconrepublic.com