Samsung beats estimates as its chips prove resilient to downturn

Samsung Electronics Co. posted a less than expected slump in profit thanks to a one-off gain in its display division, though demand for its chips and high-end smartphones remained lukewarm in the face of mounting trade tensions.

The world’s largest smartphone maker reported a 56% fall in operating income to about 6.5 trillion won ($5.6 billion) in the June quarter, helped by an unspecified one-time gain from a customer. Its display division had sought financial compensation from Apple Inc. because actual shipments of organic light-emitting diode displays for iPhones fell short of contractual estimates, the Electronic Times has reported.

Samsung slid as much as 1.2% in early trade in Seoul. The company could have secured as much as 1 trillion won in compensation from a U.S. customer, Citigroup Global Markets has estimated. That helped Samsung’s profit surpass analysts’ average forecast for 6.1 trillion won. Sales also beat expectations at 56 trillion won. The company won’t provide net income or break out divisional performance until it discloses final results toward the end of the month.

Samsung is the foremost producer of high-margin OLED displays, which hit a snag last year when supplies to Apple suffered due to the less-than-expected popularity of the iPhone X. Samsung’s search for new buyers has since paid off, with Chinese manufacturers turning to the South Korean company for the lucrative smartphone screens.

Its memory chips remain a key barometer of global demand for devices from computers to smartphones and have been one of the hardest-hit components since Trump-imposed tariffs took effect in May. The jitters over Samsung’s biggest cash cow grew when Japan this week slapped export restrictions on materials needed for display and chip production, potentially hammering Samsung and rival SK Hynix Inc.

“It will take more time to see the recovery of business sentiment for semiconductors,” IBK Securities analyst Kim Woon-ho wrote in a July 2 note. “Demand would rise in 2H but it will be lower than the prior estimates.”
Samsung shares have gained 19% this year through Thursday, sharply outpacing the Kospi’s 3.3%.