Samsung has been getting a boost from its components business, which go in everything from phones to data centers.
Angela Lang/CNET
The pandemic-caused lull in demand for phones appears to be over, at least for Samsung. The company on Wednesday reported its highest ever quarterly revenue, thanks to “significant increase in consumer demand” for its smartphones, computers and other products.
The company reported its third-quarter operating profit soared 59% from the previous year to 12.35 trillion won ($10.9 billion), while its net profit jumped to 9.36 trillion won ($8.2 billion) from 6.29 trillion won. Sales climbed 8% to 66.96 trillion won ($59 billion), better than the 64.7 trillion won ($57 billion) expected by analysts polled by Thomson Reuters.
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Samsung said it saw “a boost in demand for smartphones and consumer electronics as well as efficient cost management.” It also benefited from stronger sales of memory chips and other consumer products. “Even as the COVID-19 pandemic continues around the world, reopening of key economies led to significant increase in consumer demand,” Samsung said in a press release.
Still, Samsung warned its rebound may be short-lived. The company expects its profit to decline for the last three months of the year as server customers buy fewer memory chips and as competition heats up in smartphones and other consumer electronics. Apple, in particular, will be a tough rival for Samsung this quarter. The company introduced four new iPhones, all of which come with 5G connectivity.
Samsung does expect 2021 to be better for the electronics industry. The company predicted “a recovery in overall global demand” but noted that “uncertainties will remain over the possibility of recurring epidemic waves of COVID-19.”
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Samsung may be known as a giant in phones and TVs, but it also has huge businesses making components like memory chips. The company has counted on its components business to buoy its revenue, while its other electronics have struggled. Since the novel coronavirus pandemic began, Samsung’s chip business has gotten a boost from data centers that rely on the technology to store everything we’re doing online. But the smartphone sector boomed back in the third quarter, both in terms of handset sales and the memory chips used in those devices.
“Overall market demand increased in the third quarter as stimulus measures helped many economies recover following lockdowns during the second quarter,” Samsung said. “The company’s smartphone sales rose sharply from the previous quarter, with the launch of new flagship models such as the Galaxy Note 20 and Galaxy Z Fold 2, as well as stronger sales of mass-market models in key regions including India.”
A phone rebound
2020 was supposed to be a strong year for the phone industry, as innovations like 5G and foldable screens got people shopping again. Instead, financial struggles and worries about COVID-19 will limit the number of devices companies can make and how many phones people will actually buy.
Samsung was one of the first companies to release a phone with 5G, but it’s been surpassed by Huawei. The Chinese handset maker became the biggest smartphone vendor in the world in the second quarter, the first time in nine years that Samsung or Apple hasn’t held that title. And analysts expect Apple to become the world’s second biggest 5G phone vendor this year — with less than three months of sales. That puts Samsung, once the leader with the new connectivity, in third place.
Still, Huawei’s struggles with the US government have benefited Samsung. The company has picked up more sales for its smartphones and its networking gear as customers worry about Huawei’s longevity in the electronics market.
Samsung also has shifted its plans to deal with changing consumer preferences during the pandemic. In September, it introduced the Galaxy S20 FE, a cheaper model for its flagship smartphone lineup. The phone starts at $700 phone — $300 less than the regular S20 costs — and comes as the pandemic prompts demand for less expensive devices.
That plans appear to be working. Samsung said sales in its mobile business climbed 6.1% from the previous year to 29.81 trillion won ($26.3 billion). The level is up a whopping 51% from the second quarter, when the pandemic hurt demand. Samsung attributed the climb to demand for its new flagship products.
It also noted that it cut marketing expenses. And within mobile, sales increased for Samsung’s new tablets and wearables including the Galaxy Tab S7, Galaxy Watch 3 and Galaxy Buds Live.
Samsung’s consumer electronics division saw sharp growth in sales of premium TVs and appliances.
At the same time, Samsung’s components business continues to see strong demand. While memory chip prices fell, strong demand for phones and PCs led to higher-than-expected shipments. The company also benefited from the sale of other components for smartphones, and its business manufacturing processor for customers got a boost from chip designers making parts for data centers.
Earlier this month, Samsung said it expected its third quarter profit jumped 58% to 12.3 trillion won. It also projected its revenue increased by nearly 5% to 66 trillion won. Both amounts were higher than Wall Street’s consensus estimates at the time.
