Samsung Electronics sees stronger earnings from chips, phones after Q1 profit jump

SeongJoon Cho | Bloomberg | Getty Images

Tech giant Samsung Electronics on Thursday said it expected earnings to further improve in the current quarter, after it reported its best quarterly profit since 2013 thanks to a memory chip boom.

The South Korean company also said it had decided not to adopt a holding company structure, rejecting demands from U.S. activist hedge fund Elliott Management. It also announced a share buyback worth 2.3 trillion won ($2.03 billion).

The first-quarter result supports expectations that the world's top maker of memory chips, smartphones and televisions will book record profits in the coming quarter as well as for 2017.

Pre-orders for its Galaxy S8 smartphone launched in April were better than many analysts had expected, raising hopes that it would make up for the failure and costly withdrawal of the fire-prone Note 7s last year.

But complaints about red-tinted screens on the S8 and spotty Wi-fi connection have forced the company to offer two software fixes, denting some of the initial enthusiasm.

"Looking ahead to the second quarter, the company expects to achieve growth on the back of continued robust memory performance together with improved earnings from the mobile business following the global rollout of the Galaxy S8 and S8+," Samsung said in a statement.

January-March operating profit for Asia's most valuable company by market capitalisation was 9.9 trillion won ($8.75 billion), compared with Samsung's earlier guidance of 9.9 trillion won. It was the highest quarterly profit since the third quarter of 2013.

Revenue rose 2 percent to 50.5 trillion won. Samsung's chip business remained the firm's top earner with a record 6.3 trillion won operating profit, buoyed by price gains for both DRAM and NAND memory chips as supply growth constraints and demand for more firepower on devices such as smartphones and servers boosted margins.

The Apple competitor's mobile division reported an operating profit of 2.07 trillion won, from 3.89 trillion won a year earlier. Samsung started selling the Galaxy S7 in March last year but had no new premium product generate meaningful sales in the January-March period of this year.

The solid earnings came after Samsung Electronics chief Jay Y. Lee was arrested in February over his alleged role in a corruption scandal that led to the ouster of President Park Geun-hye. He is on a trial and denies any wrongdoing.

The scandal has been a major distraction for Samsung management, already under pressure from U.S.-based Elliott which in October called for the company to adopt a holding company structure by splitting itself in two, and to pay out a 30 trillion won ($26.75 billion) special dividend.

But Samsung said on Thursday that after reviewing the idea, it had decided to reject it.

"Samsung concluded the risks and the challenging environment surrounding a change in the corporate structure would not be beneficial for enhancing shareholder value and sustaining long-term business growth," it said in a statement.

Samsung Electronics shares were down 1.3 percent, while the wider market was down 0.3 percent as of 0002 GMT.

($1 = 1,131.7900 won)