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Samsung set for best quarterly profit in three years

Samsung Electronics has forecast its best quarterly profit in more than three years, projecting that operating profit for the last three months of 2016 surged 50 per cent as strong sales of chips and display panels offset the Galaxy Note 7 debacle.

The world’s largest maker of memory chips as well as smartphones estimated its fourth-quarter operating profit at Won9.2tn ($7.8bn), the highest since the third quarter of 2013 and well above the Won8.3tn average of a Bloomberg poll, in preliminary guidance on Friday. Sales slipped 0.6 per cent to an estimated Won53tn.

Shares in the South Korean company climbed 1.8 per cent to Won1.810m in Seoul as investors bet that earnings momentum would continue this year, with prices of microchips and organic light-emitting diode screens expected to rise further. 

The upbeat earnings guidance highlights the company’s quick recovery after having to recall and then ultimately kill off its fire-prone flagship Note 7 smartphone in October. Samsung last year warned of a $2.1bn hit to fourth-quarter profit as a result of the fiasco. 

Samsung did not provide a divisional breakdown but analysts estimate that more than half of its earnings came from the semiconductor business, whose operating profit is estimated at about Won4.7tn. Final results are due later this month.

Won9.2tn

Samsung’s estimated fourth-quarter operating profit

“The semiconductor business has entered a big cycle, which is likely to last throughout this year,” said Greg Roh at HMC Securities. “Demand for mobile and server chips is very strong, leading to a substantial earnings improvement in D-Ram and 3D Nand chips.” 

Memory chip prices have surged in recent months thanks to strong demand from smartphone makers, with 3D Nand chips rallying particularly strongly. Samsung is the leading producer of the advanced chips, ahead of rivals such as Toshiba and SK Hynix.

Market tracker DRAMeXchange projects computer memory chip prices to jump about 30 per cent in the first quarter, after rising nearly 40 per cent since November.

Analysts expect Samsung’s mobile earnings to have got back on track in the fourth quarter, estimating an operating profit of Won2.1tn fuelled by healthy sales of the Galaxy S7 and S7 Edge smartphones. Hit by the Note 7 demise, the mobile unit posted just Won100bn in third-quarter operating profit, slumping from Won4.3tn the previous quarter.

Meanwhile, cross-town rival LG Electronics on Friday forecast its first quarterly operating loss in six years, hit by lacklustre sales of its premium G5 smartphone and as higher panel prices ate into TV margins.

Samsung is planning to announce this month the results of its investigation into why the Note 7 phones caught fire, ahead of the expected April launch of its new premium Galaxy S8 smartphone. 

Fourth-quarter operating profit at its display division is estimated at Won1.1tn on the back of the panel price recovery. The division’s earnings are likely to increase further this year as Samsung expects to supply the bulk of the OLED panels for Apple’s new iPhone due out in the autumn. JPMorgan reckons Samsung will be Apple’s sole OLED supplier until at least 2018. 

Shares in Samsung hit a record high of Won1.831m on Tuesday. They surged 43 per cent last year on expectations of robust earnings, although the company has warned of slowing key markets, with trade protectionism and currency fluctuations heightening business uncertainties this year.

Via FT