© Reuters. FILE PHOTO: The logo of Samsung Electronics is seen at its office building in Seoul, South Korea, March 23, 2018. REUTERS/Kim Hong-Ji

By Joyce Lee and Heekyong Yang

SEOUL (Reuters) -Samsung Electronics Co Ltd said chip demand from smartphone and PC makers would weaken further in the second half of the year as people shop less, but that a fundamentally solid uptake of server memory chips provided a silver lining.

While the world’s top maker of memory chips and smartphones turned in its best April-June operating profit since 2018 on strong server chip demand, its mobile business saw profits weakening amid geopolitical issues, inflation concerns, and higher components and logistics costs.

“In the memory business, server demand is expected to remain solid while PC and mobile demand is likely to see continued weakness,” the South Korean company said on Thursday.

Earlier, San Diego-based Qualcomm (NASDAQ:) Inc warned of a hit to fourth-quarter sales from cooling smartphone demand, adding to the chorus of voices cautioning about chip sales as red-hot inflation squeezes consumer spending.

Also, the Ukraine crisis and COVID-19 lockdowns in China, the world’s biggest smartphone market, have worsened supply-chain snags, forcing many phone makers to cut orders for chips.

However, Samsung (KS:) was relatively optimistic about demand for smartphones in the second half, saying supply disruptions for the company had mostly been resolved and that demand would either stay flat or even see a single-digit growth.

It is aiming for foldable phone sales to surpass that of its past flagship smartphone, Galaxy Note, in the second half.

Samsung’s operating profit rose to 14.1 trillion won ($10.8 billion) for the quarter ended June 30 from 12.57 trillion won a year earlier, its highest second-quarter profit since 2018 and also slightly more than its own estimate of 14 trillion won.

The profit included chip profits of 9.98 trillion won and mobile business profits of 2.62 trillion won.

“Fundamental demand for server (memory chips) will stay solid as the investments in core infrastructure and new growth areas such as AI and 5G are expected to keep expanding, centering on major data centre companies,” Samsung said.

TSMC, the world’s largest contract-chipmaker, earlier this month also touted demand for its high-tech chips used in data centres.

However, smaller rival SK Hynix said on Wednesday that demand for server memory chips was likely to slow in the second half as data centre customers use up their inventory while bracing for recession.

Samsung’s April-June revenue rose 21% to 77.2 trillion won.

A strong dollar also aided Samsung’s chip profits, boosting its operating profit by about 1.3 trillion won versus the prior quarter, the company said.

Samsung’s chip sales are made mainly in dollars, while it reports its profit in Korean won, so a firm greenback translates to higher chip earnings.

Shares of the company were flat in morning trade, versus a 0.7% rise in the wider market and a 0.8% drop in memory chip rival SK Hynix shares.

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