Samsung's Blowout Quarter is the Flipside of Huawei's Woes -- Heard on the Street

By Jacky Wong

Call it Samsung's schadenfreude quarter: The company's blowout results owe a lot to the travails of Chinese rival Huawei. Not all of the good bad news will last, however.

The Korean technology giant said Thursday that it expects its operating profit last quarter to be around 12.3 trillion won, the equivalent of $10.6 billion, a 58% jump from a year earlier and the highest since 2018. That also handily beat analysts' average estimate of 10.1 trillion won according to S&P Global Market Intelligence.

Detailed figures will be released only later this month, but Samsung has likely done better in most of its segments. It will probably regain its spot as the world's largest smartphone maker after it was overtaken by Huawei in the second quarter. Morgan Stanley estimates Samsung shipped more than 80 million smartphones last quarter, about 50% more than the quarter before. Part of that gain represents fortuitous timing: The ban on selling chips made using U.S. technology to Huawei kicked in last month, and Apple has delayed its iPhone launch, usually held in September, to next week. Competition likely will rise again this quarter as new iPhones hit stores and other Chinese vendors such as Oppo and Xiaomi try to fill the vacuum left by Huawei.

The Huawei ban has likely also benefited Samsung's semiconductor business, which accounted for half of its operating profit in 2019. The Chinese company probably stockpiled components ahead of the US chip ban in September. Rising exports from Taiwan, also a major semiconductor exporter, can be partly attributed to Huawei's stockpiling as well, according to the island's Finance Ministry. Apart from Huawei, other Chinese smartphone makers likely have stocked up, too, to capture Huawei's lost market share, said Avril Wu, an analyst at Trendforce.

But demand for memory chips will likely drop again after these rush orders. Trendforce expects memory prices to fall around 10% this quarter.

Samsung's telecom equipment business could reap longer-lasting benefits from Huawei's troubles. The Korean company signed a $6.65 billion deal with Verizon last month to provide network equipment through the end of 2025, making it a step closer to become a major 5G supplier.

The Huawei fallout handed Samsung a windfall in the third quarter, but not all of it looks permanent.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

October 08, 2020 05:51 ET (09:51 GMT)

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