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(Bloomberg) -- Samsung Electronics Co. posted earnings that handily beat analyst estimates as stronger smartphone demand offset price declines in the memory chip business.
Operating income was 7.7 trillion won ($6.4 billion) in the three months ended September, compared with the 6.97 trillion won analysts had forecast, according to estimates compiled by Bloomberg. Still, that is a profit decline of more than 50% for the Suwon, South Korea-based company.
Samsung, the world’s largest producer of mobile phones and smartphone displays, is benefiting from solid demand for its Note 10 and for Apple Inc.’s iPhone 11 Pro, which uses the company’s OLED displays. Yet, the memory chip business has been its most profitable and uncertainties there have lingered because of the ongoing U.S.-China trade war and Japanese restrictions on the export of materials essential for chip and display production.
“It’s better-than-expected results as mobile business made a huge improvement,” said Park Sung-soon, analyst at Cape Investment & Securities.
Shares rose as much as 1.4% and had climbed 23% this year through Monday’s close.
Sales for the third quarter were 62 trillion won, beating the average projection compiled by Bloomberg of 61.14 trillion won. Samsung won’t provide net income or break out divisional performance until it releases final results later this month.
Samsung’s new high-end smartphones, including the Galaxy Note 10 and Galaxy Fold, helped cushion profit declines in the memory business. Its display business is recovering from a slump, with strong demand for OLED displays for smartphones such as Apple’s iPhone 11.
The volatile business environment due to the U.S.-China trade war and South Korea-Japan spat has fueled uncertainties and made it harder for the market to gauge demand. As Japan’s export curbs on key materials used in chips and display production kicked in early July, clients raised their inventories of memory components to minimize risk, according to a note from TrendForce on Sept 26.
“The stock-up demand was stronger than expected this third quarter due to the seasonal tailwinds and the pulling forward of end product shipments ahead of a possible new round of U.S. tariff increases in December,” said TrendForce. “Consequently, the overall trend of contract prices also shifted from decline to stability during the third quarter.”
Analysts raised operating profit estimates in recent weeks as dynamic random-access memory shipments improved in the third quarter. Citi estimated Samsung would report semiconductor profits slightly higher than its previous estimates, supported by a 30% increase in DRAM shipments quarter-on-quarter, despite a 20% drop in DRAM prices.