Despite the coronavirus outbreak, Samsung will likely post robust earnings in the first quarter of 2020. However, given that the upcoming quarters will be more reflective of the effects of COVID-19, finances will probably take a hit later on.
In the first quarter though, the chip business apparently made up for the losses encountered by the smartphone and consumer electronics wings. According to reports, compared to the Galaxy S10, its successor is off to a slow start. Per one report, sales are down nearly 30 percent in South Korea compared to S10 shipments during the same period, and another peg that at 60 percent.
According to one estimate, Samsung’s smartphone sales fell from 71.5 million units in Q1 2019 to 62.2 million units in Q1 2020.
Samsung thinks 5G demand will still rise but at slower than the anticipated rate
Samsung’s Chief Executive Kim Ki-Nam recently talked about the likely effects of the novel coronavirus on the company. Although the chaebol expects smartphone sales to drop, it forecasts an increase in chip revenue because of increased investment from data center firms and wireless operators.
For now, the company will reportedly post sales of $44.9 billion for Q1 2020, an increase of 5.5 percent from 2019. On the other hand, operating profit is believed to have dropped slightly by 0.09 percent compared to the same quarter last year to around $5 billion. Samsung will announce the Q1 earnings guidance next week.
During the first quarter, the demand for server chips apparently remained strong. Other than that, Samsung’s semiconductor unit likely also befitted because of an increase in the prices of chips in Q1.
The chip unit might also see reduced activity in the following quarters
Per the new report, the chip business will likely lose momentum in H2 2020. Server application demand will supposedly go down, and thus the trend of price increase will not continue,
Samsung, however, appears confident about the prospects of its chip business. The company believes that server investment will rise because of an increase in demand for telecommuting activities.
Since a good many regions are in lockdown right now, schools and offices have shifted critical functions to the cloud. Even when the quarantine measures are relaxed, some activities will still presumably remain on the cloud. Thus, Samsung is confident about sale of data center components.
Similarly, even though the pace of network build-out might slowdown in the short term, demand for components will continue to rise in the long term. Samsung says that quarantine measures have put a strain on networks because of increased connectivity usage. Even when all of this over, stakeholders will probably ask for more resilient networks for future-proofing.
As for the smartphone and consumer electronics business, they lwill probably continue to suffer. Low demand for handsets and electronics will also likely drag down the company’s display wing. That’s because displays are a critical part of handsets and TVs and Samsung also sells its panels to other companies.
So, overall, the South Korean giant’s performance will probably not be stellar this year. But then again, its rivals will not be immune to the effects of COVID-19 either. However, competitors like Xiaomi and Huawei may fare better, as multiple reports point towards economic recovery in China as the country slowly returns to normalcy.
If China is any proxy, companies serving other regions can expect a rebound by Q4 2020.