Samsung's operating profit grows in Q2 on brisk chip sales

South Korean tech behemoth Samsung Electronics managed to post an operating profit growth in the second quarter due mainly to brisk chip sales, the company said Tuesday.

Consolidated operating profit stood at 14.87 trillion won (13.3 billion U.S. dollars) in the April-June quarter, up 5.7 percent from the same period of last year.

It was down 4.9 percent from the previous quarter, which logged the record quarterly profit, but it kept a year-over-year growth trend owing to robust semiconductor sales.

Revenue shed 4.1 percent over the year to 58.48 trillion won (52.27 billion U.S. dollars) in the June quarter, and net income inched down 0.1 percent to 11 trillion won (9.8 billion U.S. dollars).

The second-quarter revenue retreated on softer sales of smartphones and display panels, offsetting a solid demand for memory chips. The net income slightly fell on higher corporate tax.

Both the revenue and operating profit decreased compared with the previous quarter as the South Korean currency appreciated to the euro and several other key currencies despite its depreciation to the U.S. dollar.

The local currency's weakness to its major peers, except the greenback, negatively influenced a net 400 billion won (358 million U.S. dollars) worth of operating profit compared with the prior quarter.

Strong demand for Samsung's memory chips resulted in the operating profit expansion. The chipmaking unit logged a record quarterly operating profit of 11.61 trillion won (10.38 billion U.S. dollars) in the second quarter on revenue of 21.99 trillion won (19.65 billion U.S. dollars).

The chip division's operating profit accounted for almost 80 percent of Samsung's total profit in the quarter.

It was driven by demand for DRAM chips used in data centers and NAND flash memory for high-capacity storage, said Samsung that focused on value-added products such as 64GB and higher-density server DRAM based on the 1X nanometer technology and 128GB and higher for NAND mobile storage.

The display panel business recorded an operating profit of 140 billion won (125 million U.S. dollars) on revenue of 5.67 trillion won (5.07 billion U.S. dollars).

Samsung saw weak demand for flexible OLED panels in the second quarter amid the falling shipment and price for LCD panels.

The IT & Mobile Communications (IM) division, which makes smartphones, posted an operating profit of 2.67 trillion won (2.39 billion U.S. dollars) on revenue of 24 trillion won (21.5 billion U.S. dollars).

The smartphone-making unit reported a drop in earnings, both year-on-year and quarter-on-quarter, on slow sales of its flagship Galaxy S9 smartphone amid the stagnant high-end smartphone market.

The IM division's networking business, however, won a solid growth fueled by investment in LTE networks.

The consumer electronics unit registered an operating profit of 510 billion won (456 million U.S. dollars) on revenue of 10.4 trillion won (9.3 billion U.S. dollars).

The consumer electronics unit's profit was lifted by stronger sales of premium TVs such as the QLED models, which stemmed mainly from a major global soccer event. It offset weak demand for Samsung-made air conditioners.

Samsung predicted a sustained strength in the memory chip market and a rising demand for flexible OLED panels that would drive earnings higher in the second half.

Outlook for the memory chip market remained rosy on demand for server and PC memories as well as new mobile phone launches. Samsung said it will increase the portion of 10-nanometer-class products and the mass production of 5th-generation V-NAND, while addressing demand for high-density server memory and high-bandwidth memory.

Samsung said the system LSI and foundry businesses would benefit from higher demand for mobile Aps and image sensors, noting that flexible OLED shipments would rise despite the intensifying competition.

However, the mobile phone market conditions would likely remain challenging in the second half amid new product launches and pricing competition, said the South Korean company planning to early introduce the Galaxy Note and mid- and low-end models with new features.

Samsung said it expected new opportunities in the component businesses over the mid- and long-term thanks to the ongoing transformation in the Internet of Things (IoT), artificial intelligence (AI) and 5G technologies.

The company spent 8 trillion won (7.2 billion U.S. dollars) in capital expenditure in the second quarter, including 6.1 trillion won (5.5 billion U.S. dollars) for the chip business and 1.1 trillion won (984 million U.S. dollars) for the display panel division.

It brought the total spent in the first half to 16.6 trillion won (14.8 billion U.S. dollars).