Samsung’s second-quarter profit grew 23% year-over-year, thanks to strong chip demand

Samsung Electronics sounded a cautiously optimistic note in its earnings report today. The company is continuing to deal with the fallout of the COVID-19 pandemic, but its memory business was fortified by demand for DRAM chips as data centers adapted to an increase in remote work and education.

Samsung Electronics will launch new models of its flagship smartphones, including the Galaxy Note and a foldable device, at its online Galaxy Unpacked event on August 5, but will also focus on increasing sales of low to mid-priced phones, which it expects to drive revenue during the rest of the year.

Second-quarter operating profit grew 26% from the previous quarter, and 23% year-over-year, to 8.15 trillion won (about $6.84 billion), due largely to more sales of DRAM chips. Revenue fell 4% from the previous quarter, and 6% year-over-year, to 53 trillion won, while net profit rose 7% to 5.6 trillion won. Samsung said revenue was impacted by lower sales of smartphones and other devices, but some of that was offset by reduced marketing spending and other cost-cutting measures.

The company also acknowledged that it faces intense competition from other smartphone makers. In fact, on the same day that Samsung announced its second-quarter earnings, research firm Canalys released a report that said Huawei shipped more smartphones globally than any other vendor in the second-quarter, despite dealing with American government restrictions, displacing Samsung from the top position for the first time.

On the brighter side, many analysts believe that Samsung, along with TSMC, will benefit from Intel’s recent announcement that it will outsource more semiconductor manufacturing.

Remote services drove demand for DRAM chips

The company’s semiconductor division was helped by demand for DRAM chips from data centers that need to fortify their online infrastructure to support remote workers and online education. PC demand also remained solid because of low-end laptop sales.

But sales of chips for mobile devices remained weak as consumers spent less money because of the pandemic. When they did make purchases, they tended to buy low to mid-end mobile products, which use less-powerful chips.

A “one-off gain” boosted display revenue

Samsung Electronic’s display panel business earnings improved quarter-over-quarter thanks to a “one-off gain” that boosted profits from mobile displays. Samsung did not give details about where the gain came from, but Bloomberg reports it was a compensatory payment of about 1.1 trillion won ($924 million) from Apple after the iPhone maker ordered fewer displays than expected.

But overall demand for displays was lower as COVID-19 hit smartphone sales. Operating losses were offset slightly by purchases of monitors by people working from home.

Samsung Electronics said mobile display demand is expected to recover this year as its biggest clients continue to launch new products, despite continuing uncertainties from the pandemic. It also expects orders for mobile and graphic chips to increase as new smartphones and game consoles are released, and anticipates a “full-fledged rebound in earnings from mobile displays” by the end of the year, due largely to sales of mid to low-end smartphones.