Samsung’s net profit misses estimates after iPhone 5G debut



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(Bloomberg) – Samsung Electronics Co. missed analyst estimates for the fourth quarter and warned that profitability will likely decline this quarter, citing weakness in its memory chip business and challenges with currency fluctuations.

South Korea’s largest company reported net profit in the three months ended December of 6.45 trillion won ($ 5.84 billion), missing the 7.3 trillion won average of compiled estimates. by Bloomberg. Shares fell as much as 2.8% in Seoul on Thursday.

Samsung, the world’s largest maker of memory chips and displays, adopted a cautious tone that contrasted that of many tech companies benefiting from coronavirus lockdowns. Hours earlier, Apple Inc. and Facebook Inc. reported financial results that far exceeded estimates.

“In the first quarter, we expect overall profitability to decline due to the relatively weak memory and display business,” said Ben Suh, executive vice president of investor relations, on a call with Investors. In memory, Samsung’s biggest profit driver, “results are likely to weaken due to currency effects and the continued costs associated with ramping up new factories.”

The semiconductor unit’s operating profit was 3.85 trillion won in the fourth quarter, below analysts’ estimate of 4.62 trillion won. The company said it expects business to pick up in the first half of the year.

In the smartphone business, Samsung struggled during the holiday season as Apple introduced its first 5G-capable iPhones and its Chinese rivals competed fiercely. The Cupertino, Calif.-Based company took the No. 1 position in the fourth quarter, ahead of Samsung and Xiaomi Corp., market research companies said Thursday.

With a lot of good devices out there, “there’s only so much that Samsung can take away from it,” said Kiranjeet Kaur, research director at IDC.

Investors had anticipated that Samsung could significantly increase its dividend payout, in part because the founding Lee family faces a huge inheritance tax bill. Instead, the company said it will continue to return 50% of free cash flow to shareholders between 2021 and 2023, although its annual dividend payout will increase slightly to 9.8 trillion won.

The results come just days after Samsung’s de facto boss, billionaire heir Jay Y. Lee, was sent back to jail for corruption. Although professional managers run the business units of the company, Lee has played a central role in major strategic decisions.

The company has indicated that it will continue to push forward critical transactions and investments. Samsung will use its capital to expand the capacity of its foundry business, which makes chips for customers like Nvidia Corp., to meet demand and overcome current supply shortages. It will also invest in facility expansions and “significant” acquisitions, the company said.

“In recent years, we have carefully assessed M&A opportunities and made significant progress in terms of preparation,” Choi Yoon-ho, Chief Financial Officer of Samsung, said during the earnings call. “While it is difficult to pinpoint a specific time due to uncertainties in the internal and external business environment … we are optimistic that there will be significant M&A activity during this time.”

Read more: Samsung Reaches New Heights on Strong Memory Market Outlook

Analysts including Yungsan Choi of Ebest Investment & Securities had expected a long-awaited rebound in memory chip prices due to demand for more powerful 5G servers and smartphones. Component supplier Murata Manufacturing Co. and chipmaker MediaTek Inc. both expect to ship more than half a billion 5G handsets this year.

The chipmakers Intel Corp. and Micron Technology Inc. gave a bullish forecast for the first quarter of this year on continued demand for computers and phones for working and studying from home. Taiwan Semiconductor Manufacturing Co. predicts another record year of investment with up to $ 28 billion set aside to expand and improve production capacity at a time of a silicon supply shortage affecting everyone from automakers global to mobile tech giants like Apple and Qualcomm Inc.

Samsung’s contract chip manufacturing is expected to expand with the addition of Intel as a customer. The two companies have discussed the development and production of Intel’s motherboard chipsets over the past two years and Samsung will produce the chipset at its Austin, Texas plant starting this quarter, Meritz Securities said. in a note.

Samsung loaned to $ 10 billion Texas chip factory

The existing Austin plant is capable of operating a 14-nanometer process. With growing expectations for growth in the foundry market, Samsung plans to build a state-of-the-art logic chip manufacturing plant in the region that would be capable of manufacturing chips as advanced as 3nm in the future, Bloomberg News reported. earlier.

“Regarding investments, including building a plant in the United States, we haven’t made a decision yet,” said Shawn Han, senior vice president of the semiconductor business. “Due to the nature of the foundry business which requires quick and efficient responses to customer demand, we regularly review capacity expansions. We continue to explore ways to optimize operations at factories in all regions, from Giheung, Hwaseong to Austin. “

(Updates with executive commentary in fourth paragraph)

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