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(Bloomberg) -- Samsung Electronics Co. posted quarterly profit that topped analyst estimates on growth in its memory chip business, but signaled caution in semiconductors by announcing a cut in capital spending for the year.
Net income rose to 13 trillion won ($11.4 billion) in the three months ended September, the Suwon, South Korea-based company said in a filing Wednesday. That compares with the 12.9 trillion won average of estimates compiled by Bloomberg. Capital spending this year will drop 27 percent to 31.8 trillion won.
Samsung said it’s seeing “weak seasonality” for the chip market in the fourth quarter, and warned that earnings would decline in the period. Assessing demand for memory forms the heart of Samsung’s business plans as the semiconductor division provides the biggest chunk of profits for the company that also makes smartphones and display panels. As it becomes more and more difficult to cut costs in memory production, manufacturers such as Samsung scrutinize prices while adjusting spending on plants and equipment.
“Suppliers must react faster than in the past to oversupply, which will stop the industry from going through long down cycles.” said Mike Howard, vice president of memory research at French researcher Yole Developpement. “If suppliers don’t react promptly to a weak market by cutting capex and thereby future supply, then they could see prices decline more than 25 percent in a year, which would be very bad for margins.”
Samsung shares rose as much as 2.4 percent in early trade on Wednesday before falling as much as 1.1 percent.
Operating profit was 17.6 trillion won on sales of 65.5 trillion won, the company said, in line with preliminary numbers released earlier this month.
Samsung, SK Hynix Inc. and Micron Technology Inc. together control more than 90 percent of the market for dynamic random access memory, or DRAM, chips, used in everything from data servers to smartphones. Operating income from the chip unit amounted to 13.7 trillion won, accounting for the lion’s share of profit.
Contract prices for 32-gigabyte DRAM server modules fell 0.1 percent in the three months ended September, the first quarterly decline since 2016, according to InSpectrum Tech Inc. Prices for 128 gigabit MLC NAND flash memory chips fell about 6.9 percent.
Samsung’s smartphone division posted 2.2 trillion won in operating income, down from 3.3 trillion won a year earlier.
While Samsung is the world’s biggest handset maker, it’s struggling with shrinking market share as Chinese rivals Huawei and Oppo catch up while Apple Inc. seeks to win over shoppers for premium devices.