(Bloomberg) – Samsung Electronics Co.’s profit did not reach analysts’ estimates and the company warned of weaker first-quarter results as smartphone competition intensified and memory prices remained weak.
South Korea’s largest company reported net profit for the three months ending December of 6.45 trillion won ($ 5.84 billion), losing the average 7.3 trillion won of estimates compiled by Bloomberg. Samsung also announced that it will increase its annual dividend payment to 9.8 trillion won and will continue to return 50% of free cash flow to shareholders between 2021 and 2023.
Shares fell 2.8% in Seoul on Thursday, before recovering.
Profit from Samsung’s semiconductor business fell short of estimates because of low prices for memory chips, although the company said it expected a recovery in the first half. In the smartphone business, the world’s largest handset maker struggled during the holiday season when Apple Inc. launched its first 5G-capable iPhones and Chinese rivals faced fierce competition.
With many good devices on the market, “there is a limit to what Samsung can take,” said Kiranjeet Kaur, research manager at IDC.
Samsung will expand the capacity of its foundry business, which makes chips for customers such as Nvidia Corp., to meet demand and overcome current supply shortages. It will also “actively” use the resources to expand “significant” strategic facilities and acquisitions, the company said.
Preliminary figures released earlier this month showed that Samsung’s operating profit increased by 26%.
A strong gain and costs associated with the new production lines weighed on Samsung’s semiconductor business, the company said. The semiconductor unit’s operating profit was 3.85 trillion won, down from an estimated 4.62 trillion analysts. The currency winds and uncertainty surrounding the spread of Covid-19 are expected to have a continuing negative impact, Samsung warned.
Read more: Samsung reaches new high with strong outlook on the memory market
Demand for more powerful 5G smartphones, coupled with the buildup of server inventory, is expected to generate a long-awaited recovery in memory chip prices and “analysts are busy updating their memory price estimates,” said Yungsan Choi, an analyst from Ebest Investment & Securities. Component supplier Murata Manufacturing Co. and chip maker MediaTek Inc. predict that more than half a billion 5G devices will be shipped this year.
Samsung’s business is showing signs of growth at a time when its de facto leader, billionaire heir Jay Y. Lee, is back in prison after his sentence on bribery charges. Its foundry and display panel division businesses recorded quarterly records. The company anticipates “robust” smartphone sales, having launched its new family of flagship Galaxy devices earlier than usual this year.
Chipmakers Intel Corp. and Micron Technology Inc. gave an optimistic forecast for the first quarter of this year on the continued demand for computers and phones that allow them to work and study at home. Taiwan Semiconductor Manufacturing Co. is planning another record year of investment with up to $ 28 billion earmarked to expand and improve its production capacity at a time of scarcity in silicon supply that affects everyone from global auto manufacturers to global giants. mobile technology like Apple Inc. and Qualcomm Inc.
Samsung’s contract chip manufacturing is expected to expand with the addition of Intel as a customer. The two companies have discussed the development and production of Intel’s motherboard chipsets over the past two years and Samsung will produce the chipset at its Austin, Texas, plant starting this quarter, Meritz Securities said in a note.
Samsung to consider $ 10 billion chip manufacturing plant in Texas
The existing Austin plant is capable of operating in a 14 nanometer process. With growing expectations for growth in the foundry market, Samsung is considering building a state-of-the-art logic chip factory in the region, which would be able to manufacture chips as advanced as 3nm in the future, Bloomberg News previously reported.
(Updates with details of the second paragraph earnings call)
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