Tech

Samsung shares jump 2.41% following better-than-expected Q3 guidance

Key Points
  • Samsung Electronics said on Tuesday that its operating profit for the three months that ended in September dropped by more than half from a year ago.
  • Operating profit for the third quarter is expected at 7.7 trillion Korean won ($6.43 billion), down 56.17% from a year ago when the world's largest smartphone maker had posted 17.57 trillion won in profit.
  • Like other chipmakers, the South Korean tech giant has struggled in an environment where the price and demand for memory chips have been low for almost a year due to inventory adjustments and a supply glut.
  • But the industry-wide situation appears to be improving and there are signs of broad-based recovery, according to Sanjeev Rana, a senior analyst at CLSA.
Samsung Electronics Co. 8GB Double-Data-Rate (DDR) 4 memory modules are arranged for a photograph in Seoul, South Korea, on Tuesday, July 9, 2019. Resurgent tensions between Japan and South Korea threaten to wallop chipmakers from Samsung Electronics Co. to SK Hynix Inc., upsetting a carefully choreographed global supply chain by smothering the production of memory chips and other components vital to widely used devices. Photographer: SeongJoon Cho/Bloomberg via Getty Images
SeongJoon Cho | Bloomberg | Getty Images

Samsung Electronics said on Tuesday its operating profit for the three months that ended in September likely dropped by more than half from a year ago.

Operating profit for the third quarter is expected at 7.7 trillion Korean won ($6.43 billion), down 56.17% from a year ago when the world's largest smartphone maker posted 17.57 trillion won in profit. Still, that third-quarter number, if realized, will be slightly higher than an average analyst forecast of 7.1 trillion won by Refinitiv Smartestimate.

The company said its consolidated sales for the three months was 62 trillion won, down about 5.3% from a year ago.

Samsung shares jumped 2.41% on Tuesday, beating the South Korean benchmark index that rose 1.21%.

If the guidance is realized when the company reveals full results later this month, it will be the third consecutive quarter where Samsung's operating profit has more than halved from the same period a year earlier. In the three months that ended June, Samsung said its operating profit fell 55.61% on-year.

Like other chipmakers, the South Korean tech giant has struggled in an environment where the price and demand for memory chips have been low for almost a year due to inventory adjustments and a supply glut. Memory components used in smartphones and data centers make up Samsung's main profit-making business.

But the industry-wide situation appears to be improving and there are signs of broad-based recovery, according to Sanjeev Rana, a senior analyst at CLSA.

Samsung's third-quarter guidance was "primarily driven by better-than-expected memory shipments," Rana told CNBC's "Squawk Box" on Tuesday. "Overall DRAM and NAND demand appear to be doing much better than what the market had expected" as well as what Samsung had guided on its second-quarter earnings call a few months ago.

DRAM memory is used to allow computers, smartphones and tablets to run multiple applications at the same time, while NAND flash memory is a storage component that retains data.

"It looks like things are improving. DRAM and NAND inventories at the supplier and customer level are declining," Rana said, explaining that many of those companies are now starting to re-stock their inventories. "NAND prices have started moving up and I think DRAM prices should also follow in a matter of one to two quarters."

He added that demand for memory chips is picking up from companies making personal computers, smartphones and building data centers. "We think 2020 will actually be a good year for Samsung's earnings," Rana said.