Samsung Electronics Struggles to Maintain Operating Profit in 1Q at 6 Trillion Won... Bleak Outlook for 2Q (Update)

[Asia Economy Reporter Kim Hyewon] Samsung Electronics barely maintained its operating profit in the 6 trillion KRW range in the first quarter by minimizing the impact of the novel coronavirus disease (COVID-19). However, from the second quarter, sales slowdown due to COVID-19 in its main markets, the United States and Europe, is expected to lead to poor future performance.

Samsung Electronics announced on the 7th that its consolidated financial statements for January to March showed tentative sales of 55 trillion KRW and operating profit of 6.4 trillion KRW.

Sales increased by 4.98% compared to the first quarter of 2019 (52.39 trillion KRW) but decreased by 8.15% compared to the previous quarter (59.88 trillion KRW). Operating profit increased by 2.73% compared to the same period last year (6.23 trillion KRW) but decreased by 10.61% compared to the previous quarter (7.16 trillion KRW). The operating profit margin was 11.6%, marking the lowest since the third quarter of 2016 (10.9%).

First-quarter sales slightly missed the securities firms’ average forecast of around 55.1 trillion KRW, but operating profit exceeded the forecast (6.0948 trillion KRW). In early February, securities firms had projected Samsung Electronics’ first-quarter operating profit at 6.6 trillion KRW, but in March, they significantly lowered their expectations reflecting the impact of COVID-19.

Samsung Electronics’ relatively favorable first-quarter performance is attributed to the absence of production disruptions in the semiconductor division despite the COVID-19 crisis, as well as increased demand and rising prices for server memory semiconductors due to the boom in non-face-to-face industries such as remote work. Additionally, a favorable exchange rate effect contributed to the results.

The problem starts from the second quarter, when the U.S. and European markets were directly hit by COVID-19. While corporate server demand in the semiconductor sector is expected to remain steady in the second quarter, growth is anticipated to be limited due to a 'demand cliff' caused by weakened consumer sentiment in mobile and home appliances.

A Samsung Electronics official said, "Demand for key products in the U.S. and Europe is clearly declining," adding, "In the first quarter, the economic impact of COVID-19 was less severe, allowing us to barely endure despite difficulties, but in the second quarter, uncertainty has increased to the point where it is difficult to predict management figures, and overall poor performance below market expectations is expected."

This content was produced with the assistance of AI translation services.