Chips drive highest Samsung Q2 profit since 2018, but demand cooling

• Samsung Electronics posted its biggest April-June profit since 2018.
• Samsung’s semiconductor profits in the 2nd quarter have also benefited from a strong dollar.
• Slowing smartphone sales have been caused by factors such as rising prices etc.

Samsung Electronics Co., Ltd. of South Korea posted its biggest April-June profit since 2018, supported by robust sales of memory chips to server clients even as demand from smartphone manufacturers experiencing a slowdown due to inflation cools.

Following the release of preliminary results, shares of the largest memory-chip and smartphone manufacturer in the world increased by 3.2 percent, outpacing a market increase of 1.8 percent.

Shares of competing chipmaker SK Hynix and the largest foundry in the world, TSMC, also increased as analysts predicted that a shortage of some chips might help counteract a decline in demand that is pushing down the cost of memory chips.

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Just shy of a 14.45 trillion won SmartEstimate from Refinitiv, Samsung reported an operating profit of 14 trillion won ($10.7 billion), an increase of 11% from 12.57 trillion won a year earlier.

According to market expectations, revenue increased by 21% to 77 trillion won in the second quarter.

Samsung’s good quarter comes as rival chipmakers have issued warnings about an impending chip glut at clients who stockpiled up during the epidemic to accommodate increased demand from those who work from home.

As high inflation restrains spending, chipmakers like Micron and Advanced Micro Devices have recently signalled dwindling demand.

According to Park Sung-soon, an analyst at Cape Investment & Securities, “Memory chipmakers are expected to build inventory this year, keeping supply cautious, and raise shipments when prices bounce and demand recovers next year.”

According to data source TrendForce, the cost of certain DRAM chips, which are used in servers and devices, decreased last month by around 12% from the same time the previous year. Prices of NAND Flash chips, which are used for data storage, are also anticipated to decrease by as much as 5% from the prior quarter in the period between July and September.

Slowing smartphone sales have been caused by factors such as rising prices, worries about a slowdown in important markets, the conflict in Ukraine, and China’s COVID-19 lockdowns, with server chip demand remaining the lone area of optimism, according to analysts.

They claimed that Samsung’s revenues were protected by the continued purchases of chips by major American IT companies that rely heavily on data centres, including Amazon, Microsoft, Alphabet’s Google, and Meta.

Taiwanese contract electronics company and Apple iPhone manufacturer Foxconn (2317.TW) on Monday upped its full-year estimate and said it was bullish about the third quarter, arguing for robust server demand.

Samsung’s semiconductor profits in the second quarter may have also benefited from a strong dollar that reached a 20-year high.

Since Samsung reports its profit in Korean won but sells its chips mostly in dollars, a strong dollar means more chip sales.

According to Counterpoint Research, as a result of rising prices, Samsung’s mobile business shipped an estimated 62–64 million smartphones in the second quarter, which is 5%–8% less than what was anticipated in March.

In the first quarter, Samsung shipped 74 million devices.

“Although there is considerable variation, the big international smartphone manufacturers all follow this trend. The decline in demand for low- and mid-end smartphones appears to be particularly significant “Jene Park, a senior analyst at Counterpoint, remarked

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