Samsung's financial calm before COVID-19 storm

South Korean behemoth Samsung Electronics posted fairly resilient and better-than-expected earnings guidance for its first quarter ended March 31. Compared with the same quarter last year, both sales and operating profit are bearing up.

Any COVID-19 bump, which seems likely to happen, has still to work its way through the financial figures.

Operating profit for the first quarter is pegged at around 6.4 trillion Korean won ($5.2 billion), which is a marginal increase on the KRW6.23 trillion ($5.1 billion) drummed up in operating profits during the same period last year.

Neither is there any sign of sales flakiness, at least not yet. This year's first-quarter turnover is expected to be in the region of KRW55 trillion ($45 billion), up almost 5% from a year ago.

But earnings guidance does not break out the performance of each business unit at Samsung Electronics. Only when the full earnings presentation is released, later this month, will we have a better idea about what's going on at the different business units, which include consumer electronics, IT and mobile communications, and device solutions.

Analysts reckon, though, that the company's memory chip business, which generated more than 50% of its operating profit in 2019, would likely report better-than-expected results in the first quarter.

There's no great expectation, however, that Samsung Electronics will continue on an even keel this year. The company has already gone on record as saying the coronavirus pandemic will hurt sales of smartphones and consumer electronics, and there have been closures of factories and retail stores in Europe, India and the US.

A Reuters report, citing a person familiar with Samsung's operations, said the South Korean tech giant was bracing for a bigger COVID-19 hit in the second quarter.

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How far the memory chip business can hold up may well determine the extent of profit-margin damage. Increased demand from laptop makers and data centers, as more people work from home, is a possible COVID-19 upside.

South Korea's LG Electronics, which overlaps Samsung Electronics' business areas, could be in the same boat.

Financials are evidently not taking a hit yet, with first-quarter sales projected to be fairly steady at around KRW14.7 trillion ($12 billion) and operating profit up by an impressive 21.1%, year-on-year, to KRW1.1 trillion ($900 million).

— Ken Wieland, contributing editor, special to Light Reading