In this Wednesday, July 26, 2017 photo, a visitor experiences Samsung Electronics Galaxy S8 smartphones at its shop in Seoul, South Korea. Samsung Electronics on Thursday, July 27, said its second-quarter profit surged 85 percent to record high thanks to memory chips. (AP Photo/Ahn Young-joon)

Samsung, surmounting legal woes, logs record profit on chips

July 27, 2017 - 12:05 am

SEOUL, South Korea (AP) — After a tumultuous year when its chief was jailed and its fire-prone smartphones were recalled and then discontinued, Samsung Electronics has reported record high quarterly earnings thanks to booming demand for memory chips.

The record high profit Samsung reported for its semiconductor unit on Thursday likely pushed South Korea's biggest company ahead of industry leader Intel. Samsung also likely outstripped Apple in quarterly earnings for the first time as soaring use of connected devices and mobile data fueled demand for computer chips.

Samsung is on track to report its highest ever annual profit for the year. But while its bottom line is better than ever, the company's leadership is in turmoil after its vice chairman and de facto chief Lee Jae-yong was jailed amid a corruption scandal that unseated former South Korean president, Park Geun-hye.

While Lee and Park battle allegations of bribery and other charges, Samsung is thriving thanks to tiny microchips called DRAM and NAND memory chips, which are needed to store and process data in servers and mobile devices.

The South Korean company said its April-June net income was 10.8 trillion won ($9.7 billion), up 85 percent from 5.8 trillion won a year earlier.

Analysts had forecast 10.1 trillion won in net profit according to FactSet, a financial data provider.

Operating profit jumped 73 percent over a year earlier to 14.1 trillion won ($12.7 billion) while sales rose 20 percent to 61 trillion won ($54.8 billion), in line with Samsung's earlier guidance.

Despite relatively slow demand for smartphones and TVs, Samsung is benefiting from an unprecedented boom in the memory chip industry that analysts have dubbed the "memory super cycle."

Increased use of connected devices and mobile data is driving demand for server memory to store, analyze and process data. Tight supply conditions have pushed up prices of memory chips in the past year, and Samsung and South Korea's No. 2 chip manufacturer, SK Hynix, are enjoying unprecedented profitability.

Nearly 60 percent of Samsung's quarterly income was generated by its semiconductor division, which booked 8 trillion won ($7.2 billion) in operating income on sales of 17.6 trillion won ($15.8 billion).

Samsung's other components business, which makes high-end display panels called OLED for smartphones, also saw solid gains in earnings after this spring's launch of new Samsung Galaxy smartphones using the advanced displays.

The Galaxy S8 series of smartphones recorded higher sales than their predecessors, helping the company's mobile business rebound from last year's crisis over fire-prone Galaxy Note 7s that cost Samsung more than $5 billion. Samsung said its mobile business logged 4.1 trillion won ($3.7 billion) in operating profit. That is slightly lower than its year-earlier result due to higher component prices but nearly double the previous quarter's income

The good times for Samsung appear likely to put it ahead of its rivals.

Apple, is forecast to report $8.2 billion in quarterly net profit when its financial results are disclosed on Tuesday, according to FactSet. April-June is typically a slow season for Apple.

Intel, due to report its earnings later Thursday, is expected to book $14.4 billion in quarterly revenue.

Looking ahead, Samsung said its third quarter profit may take a hit from marketing expenses from its upcoming launch in its new Galaxy Note series smartphone.

But it still has a good chance of reporting its biggest annual earnings in its history this year.

The outlook for semiconductor demand is robust and the overall profit during the second half will grow thanks to memory chips and its OLED screens, Samsung predicted.

Companies are adding server memory capacity to expand new server platforms, cloud services and handle artificial intelligence and other emerging services. Hardware manufacturers will likely increase orders of memory chips for smartphones as they launch new models later this year. Consumers also expect their handsets to be packed with higher memory storage, which increases memory demand.

In the meantime, Samsung has largely insulated its day-to-day operations from Lee's legal troubles, though the longer term implications for Samsung's leadership remain unclear.

Both Lee and Park have denied wrongdoing. A court ruling on Lee's case is expected before Aug. 27, when his arrest warrant expires.

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