Samsung warns of weak demand for chips for phones and computers as people shop less

Samsung Electronics’ logo appears in its office building in Seoul, South Korea, March 23, 2018. REUTERS/Kim Hong Ji

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  • Server customers may have to adjust inventory in the event of a recession – Samsung official
  • H2 foldable phone sales aim to surpass the previous flagship
  • Strong Dollar Helped Take Profits in Q2

SEOUL, July 28 (Reuters) – Samsung Electronics Co., Ltd. (005930.KS) He warned demand for chips from smartphones and PCs would weaken further as shopping drops, and that more resilient demand from server customers may also see adjustments amid recession fears.

While the world’s largest maker of memory chips and smartphones had its best operating profit from April to June since 2018 on strong demand for server chips, it said its mobile business saw earnings weaken amid geopolitical issues, inflation concerns, rising components and logistics costs. Read more

“Server (chip demand) is less affected by macro issues…but in the event of a global recession, server customers will also have to adjust their inventory,” Jin Man Han, executive vice president of Samsung’s memory chip business, said at a conference. a call.

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«Due to the high level of uncertainty, we are constantly updating our forecasts,» he added.

Earlier, San Diego-based Qualcomm Inc (QCOM.O) He warned that fourth-quarter sales were hurt by lower smartphone demand, adding to the chorus of voices warning about chip sales as severe inflation pressures consumer spending.

Also, the Ukrainian crisis and the shutdown of COVID-19 in China, the world’s largest smartphone market, have exacerbated supply chain hurdles, forcing many phone makers to cut chip orders.

Han said Samsung will respond to the uncertainty with «flexible» deployment of short-term capital expenditures and a disciplined supply of chips to match demand.

Cape Investment & Securities analyst Park Sung-Soon said he expects «capital spending cuts by Samsung and SK Hynix for the next year in the memory chip industry.»

However, Samsung was relatively upbeat about smartphone demand in the second half, saying that the company’s supply disruptions were mostly resolved and that demand would either remain flat or even see single-digit growth.

Sales of foldable phones aim to outpace sales of its previous flagship smartphone, the Galaxy Note, in the second half. It is expected to unveil the latest foldable devices on August 10.

Best Q2 profit since 2018

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, the highest profit in the second quarter since 2018 and also slightly more than its own estimate of 14 trillion won.

The earnings included chip earnings of 9.98 trillion won and mobile phone business earnings of 2.62 trillion won.

«Primary demand for servers (memory chips) will remain strong as investments in core infrastructure and new growth areas such as artificial intelligence and 5G are expected to continue to expand, with a focus on large data center companies,» Samsung said.

TSMC (2330.TW), the world’s largest chipmaker, earlier this month also touted demand for its high-tech chips used in data centers. Read more

However, smaller competitor SK Hynix 000660.KS said on Wednesday that demand for server memory chips is likely to slow in the second half as data center customers use their inventory while preparing for a downturn. Read more

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

The firm said a strong dollar also helped Samsung’s chipset profits, boosting its operating profit by 1.3 trillion won compared to the previous quarter.

Samsung’s chip sales are primarily in dollars, while it reports its earnings in Korean won, so a strong dollar translates to higher chip earnings.

The company’s shares rose 0.7% in afternoon trading, versus a 1% rise in the broader market (.KS11) And a 0.3% drop in memory chip rival SK Hynix shares.

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(Additional reporting by Joyce Lee and Hekyung Yang.) Edited by Himani Sarkar

Our criteria: Thomson Reuters Trust Principles.

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