Samsung Electronics expects profit to decline in the fourth quarter amid weakening memory chip demand from server customers and intensifying competition in mobile phones and consumer electronics.

Samsung reported operating profit climbed 52% sequentially and 59% on year to KRW12.35 trillion (US$10.9 billion) in the third quarter of 2020. A boost in demand for smartphones and consumer electronics led to the sequential profit surge.

Samsung enjoyed a near 50% jump in sales of smartphones including new flagship products, coupled with improved cost management, which lifted earnings at the company's mobile communications business from the previous quarter. The consumer electronics division also witnessed a sharp growth in sales of premium TVs and appliances, supported by flexible management of supply chain and sales channels.

Samsung's memory business posted solid earnings as healthy demand for mobile and PC products led to higher-than-expected shipments, outweighing the impact of lower memory chip prices. The system LSI business also saw profit rising over demand for mobile phone components, while the foundry segment benefited from increased orders for HPC chips and other applications.

Meanwhile, Samsung's display panel business reported higher profit quarter-on-quarter led by growing mobile display sales on customers' new product launches and improved supply-demand environment for large panels.

Samsung reported KRW66.96 trillion in consolidated revenue for the third quarter. Even as the COVID-19 pandemic continues around the world, the company noted, Samsung was able to respond aggressively through flexible global supply chain management reporting its highest-ever quarterly revenue.

Looking into the fourth quarter, soft prices in server memory due to customers' inventory adjustments will likely weigh down Samsung's memory business despite stable demand for mobile and laptop memory. The system LSI business will begin supplying 5nm 5G SoCs "in earnest," said the company, adding that the foundry segment expects increased demand for HPC chips and mobile SoCs. In displays, mobile panel sales are set to rise significantly from the third quarter.

Samsung's mobile communications business is likely to see smartphone sales decline and marketing costs increase due to competitive market environment. In consumer electronics, profitability is expected to weaken on growing competition and rising costs, despite solid demand.

For 2021, Samsung expects a recovery in overall global demand but uncertainties will remain over the possibility of recurring epidemic waves of COVID-19.

Samsung aims to enhance its leadership in memory chips through expansion of next-generation process node, flexible production management to meet immediate demand and timely investment to address demand over the mid- to long-term. Besides, the company disclosed its system LSI business will focus on differentiated 5G SoCs and high-resolution sensors, while the foundry segment seeks to accelerate growth by diversifying applications to HPC and securing new major customers.

As for its display panel business, the company plans to launch new quantum-dot (QD) displays in 2021 while focusing on improving earnings by enhancing leadership in mobile displays. Samsung's mobile communications business plans to expand foldable and 5G model offerings globally, while its networks business will strengthen its global positioning on the back of growing commercial 5G services. The consumer electronics division will strengthen its online and B2B presence and expand its premium product lineup.

In addition, Samsung revealed that its third-quarter capex reached KRW8.4 trillion, including KRW6.6 trillion spent on semiconductors and KRW1.5 trillion on displays. The cumulative total for the January-September period is KRW25.5 trillion, with KRW21.3 trillion allocated to semiconductors and KRW3.1 trillion to displays.

Samsung expects its 2020 capex to be at approximately KRW35.2 trillion, of which KRW28.9 trillion will be allocated to semiconductors and KRW4.3 trillion to displays. This year's capital expenditures on the memory business will exceed last year's total due to migrations to advanced process nodes and capacity expansion to address future demand, the company noted.

Meanwhile, Samsung's capex on its memory business is expected to increase in 2020 for capacity expansions including ramping a 5nm EUV facility. Capex on its display panel business is also set to rise on investment in new QD displays and improved processes for mobile panels.