Prolonged COVID-19 Pandemic Spurs Surge in 'Home-Stay Demand'... Phones, TVs, and Home Appliances Soar

Samsung Electronics Q3 Operating Profit 12.3 Trillion
Set Business Driven by New Products
IM Division Expected to Reach Mid-4 Trillion Range
CE Division Estimated to Recover to 1 Trillion Range
Highest Performance Since Q2 2016

On the 8th, Samsung Electronics announced that its consolidated operating profit for the third quarter of this year was preliminarily estimated at 12.3 trillion won, an increase of 58.1% compared to the same period last year. The photo shows the Samsung Electronics building in Seocho-gu, Seoul. Sales increased by 6.45% to 66 trillion won compared to the same period last year. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporters Hyewon Kim and Dongwoo Lee] Samsung Electronics posted a 'surprise performance' with quarterly operating profit exceeding 12 trillion won amid the COVID-19 pandemic. This was thanks to the rapid recovery of pent-up demand centered on smartphones, TVs, and home appliances, as well as the semiconductor business holding steady due to emergency orders triggered by Huawei-related factors.

While the semiconductor sector led the strong performance in the first half of this year, the set (finished product) business, driven by premium new products, appears to be leading the momentum in the second half. However, in the fourth quarter, the last quarter of the year, external concerns remain over potential demand weakness due to the resurgence of COVID-19 and uncertainties from the US-China trade conflict. Internally, a series of trials involving Samsung Electronics Vice Chairman Lee Jae-yong are scheduled, raising concerns about management gaps.

"Sets Soar, Semiconductors Hold Firm"… The Driving Force Behind Q3 Earnings Surprise

Although Samsung Electronics' preliminary Q3 earnings report released on the 8th did not include figures by business division, industry insiders point to the IT & Mobile (IM) division, responsible for smartphones, and the Consumer Electronics (CE) division, which includes TVs, washing machines, and refrigerators, as the main contributors to the earnings surprise. They fully benefited from new products and the peak season effect. Securities firms estimate that the IM division alone posted operating profits in the mid-4 trillion won range, driven by a surge in shipments of the newly launched Galaxy Note20 series and Galaxy Z Flip2 in Q3.

Cost savings from reduced offline marketing also contributed to improved operating profits. An industry insider explained, "As the COVID-19 pandemic prolonged, people worldwide became accustomed to online marketing and spent more time at home, leading to explosive demand for premium home appliances such as TVs, refrigerators, and dryers." The CE division is also estimated to have recovered operating profits to the 1 trillion won level, marking the highest performance since Q2 2016 (1 trillion won).

Strong sales of sets also benefited the semiconductor and display parts businesses. Although server DRAM prices fell due to increased inventory at server companies, the activation of the untact economy amid COVID-19 supported PC demand, and mobile semiconductors and graphics DRAM sold well thanks to strong sales of smartphone new products and game consoles. Additionally, ahead of US sanctions, China’s Huawei placed rush orders for semiconductors, temporarily boosting shipments and providing a windfall. The Device Solutions (DS) division, responsible for semiconductors, is expected to post Q3 operating profits similar to or slightly above Q2’s 5.43 trillion won.

Mixed Outlook for Q4 Results… Key Points to Watch

As opinions diverge on whether Samsung Electronics will maintain strong performance in Q4, the prevailing view is that growth will somewhat slow compared to Q3. The key points to watch include the downward trend in semiconductor prices, the economic retaliation effects between the US and China amid trade disputes, and the strength of set demand. Song Myung-seop, a researcher at Hi Investment & Securities, said, "Semiconductor performance deterioration is becoming clear in Q4 compared to Q3. Shipments are expected to be similar, but the average selling price of DRAM will fall by 6-8%." However, he added, "Overall, the set market, including smartphones and displays, will offset the semiconductor performance decline. Operating profit is expected to remain in the 11 trillion won range in Q4."

Kim Young-woo, an analyst at SK Securities, said, "Thanks to the recovery of the system semiconductor market and cost reduction effects in NAND flash since Q2, Q4 results are expected to be favorable, but DRAM prices will definitely fall further." He added, "Display operating profit, which stayed in the 200 billion won range in Q3, is expected to surge to around 1.7 trillion won in Q4, supported by large-scale sales in the US and Europe, painting a not-so-bad picture."

Contrary to somewhat positive expert forecasts, the industry is closely monitoring the aftereffects of Huawei sanctions and the clear downward trend in semiconductor prices, expecting the market situation to remain challenging. DRAMeXchange forecasts that PC DRAM prices will fall about 10% in Q4 compared to Q3, while TrendForce projects server DRAM prices to drop by 13-18%.

An industry insider said, "Even if server DRAM demand recovers, it will not lead to price increases. Although alternative trading partners for Huawei are being sought, the situation is not positive, and there is talk that pre-order inventory covers six months, which could lead to a gradual sales decline until the first half of next year." Furthermore, if the US-China trade dispute prolongs, the industry consensus is that semiconductor demand weakness will be greater and deeper than expected.

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