Samsung Elec flags mobile weakness as chips power record first-quarter profit

SEOUL (Reuters) - Samsung Electronics Co Ltd () said weakness in the global smartphone market would slow earnings growth, as it reported record quarterly profit on Thursday thanks to strong demand for semiconductors used in servers.

The world’s biggest maker of memory chips, smartphones and television sets also flagged softer demand for smartphone OLED panels as a challenge for the second quarter, while its cash-cow chip business should remain strong.

“Generating overall earnings growth across the company will be a challenge due to weakness in the display panel segment and a decline in profitability in the mobile business amid rising competition in the high-end segment,” Samsung said in a statement.

Samsung Electronics shares were up 3 percent as of 0040 GMT, while the KOSPI benchmark share price index .KS11 was 0.9 percent higher, as investors shrugged off concerns about the smartphone market and seized on the positive outlook for memory chips.

“Shares are rising as Samsung Electronics’ outlook for its memory chip business appears more positive than we’ve heard from other companies,” said Greg Roh, analyst at HMC Investment & Securities.

South Korean rival SK Hynix Inc () and Taiwan Semiconductor Manufacturing Co Ltd (TSMC) () separately warned this month of slower growth in smartphone chip sales. TSMC, a key supplier for Apple Inc’s () iPhones, cut its revenue target last week.

But Samsung Electronics, a rival and supplier to Apple, forecast continuing strong sales not only of server DRAMs but mobile DRAMs as well.

Demand for NAND chips used in mobile devices was also expected to be strong, it added, referring to the “high-density trend” for more powerful chips in the latest gadgets.

Samsung Electronics said operating profit was 15.6 trillion won ($14.4 billion) in the first quarter, up 58 percent from a year ago and in line with the 15.6 trillion won the company had estimated. Revenue jumped 19.8 percent to 60.6 trillion won, also in line with its estimate.

The chip business was Samsung’s top earner again as it booked a record 11.6 trillion won operating profit in January-March, from 10.9 trillion won in the previous quarter, despite signs the recent boom in memory chips was tapering off.

The mobile business booked 3.8 trillion won in quarterly profit, up 82 percent from a year ago.

Samsung has shipped about 10 million units of its flagship Galaxy S9 smartphone since sales began in mid-March, in what analysts said was a solid showing.

According to market research firm GfK, global smartphone demand fell two percent to 347 million units in the first quarter of 2018. Demand was especially sluggish in China and North America, it said.

However, the average sales price grew 21 percent year-on-year in the quarter, leading to an 18 percent rise in global smartphone revenue year-on-year to $129.8 billion.