Samsung Q4 hit by lower memory chip prices

Samsung has enjoyed a good run lately when it comes to the DRAM market.

As more people work from home because of the pandemic, this has translated into stronger PC and data center demand. This is all great for memory chip sales.

The South Korean behemoth's Q4 results, however, were hit by lower average selling prices (ASPs) for DRAM chips, which impacted profits.

Looked at from a year-on-year perspective, overall operating profit is moving in a healthy and upwardly projection. It rose 26.4%, to a shade over 9 trillion Korean won (US$8 billion), compared with Q4 2019. Compared with Q3 2020, however, it slumped by a worrying 26.7%.

Samsung didn't blame the profit drop entirely on weaker memory prices. It also flagged "sluggish" consumer product sales, higher marketing costs and the negative impact from the Korean won's appreciation, equivalent to about KRW1.4 trillion ($1.3 billion) compared with the previous quarter.

A decline in DRAM ASPs was nonetheless a massive contributory factor. Operating profit at Samsung's semiconductor business, of which memory chips account for the bulk of sales, fell by an eye-catching 31% to KRW 3.5 trillion ($3.1 billion).

On the road to recovery

Even so, Samsung anticipated that the DRAM market was "highly likely" to recover in H1 2021 fueled by "solid demand" from both the mobile and server segments.

Park Sung-soon, an analyst at Cape Investment & Securities who was quoted by Reuters, was similarly optimistic.

"DRAM prices are expected to rise much higher than expected in Q1, as server customers run out of inventory they stockpiled when COVID-19 first broke out in the first half of last year, and start buying again," he said.

IM knocked down in Q4 2020, flying high in Q1 2021?

Sales at Samsung's IT and mobile communications (IM) business unit, which accounts for over a third of the company's turnover, fell by 10%, to KRW 22.34 trillion ($19.9 billion).

This was due to weaker sales and what Samsung called "intensified competition" in the smartphone market. On a quarter-on-quarter basis, the drop on sales was a more dramatic 27%.

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Due to a sharp increase in seasonal marketing costs, IM operating profit was also down, quarter-on-quarter, by an enormous 46% to KRW2.42 trillion ($2.2 billion). The good news is that IM's operating income remains in double-digit territory, apparently owing to improvements in cost structure.

Samsung reckons that IM's revenue and profit performance will look a lot rosier in Q1 2021, helped by the early launch of its flagship S21 smartphone.

Samsung Q4 consolidated revenue was KRW61.55 trillion ($55.1 billion), up 3% year-on-year.

What about networks?

Samsung doesn't give a performance breakout of its networks business, which sits within the IM division, but it seems to be making good progress.

The supplier talked of 5G expansion in South Korea, as well as 4G/5G expansion overseas, including Japan and North America.

Last September, Samsung landed a breakthrough 5G deal with Verizon valued at $6.6 billion.

— Ken Wieland, contributing editor, special to Light Reading