South Korea electronics giant Samsung Electronics estimated that its operating for the third quarter jumped 20% to a new record high, with the company’s semiconductor unit boosted by strong demand from data centers as well as gains in its production yields.
However, sharp drops in price for certain chips have brought its two-year super cycles of limited supply and surging demand to an end, and industry analysts expect the quarter for July through September to mark a peak in the tech giants earnings.
Competition from less expensive phones made in China and higher costs to market have meant that any imminent rebound for the mobile unit at Samsung is not likely.
A senior analyst in South Korea said that dropping chip prices are going to pressure profits while shipments of smartphones are not where they need to be and will continue crimping margins.
Results for the third quarter for the top maker in the world of smartphones and memory chips were impressive nonetheless. Preliminary operating profit jumped by over 20% to 17.5 trillion won or $15.5 billion thanks to a gain of 4.8% in revenue that was in line with expectations of analysts.
Samsung did not speak about its performance and will not disclose its earnings until late in October.
Chips represent close to 80% of the operating profit for Samsung and the company has been the benefactor of a surge by data centers for cloud computing that spurred on spikes in DRAM chip prices. Those chips help devices perform more than one task and are the company’s main product related to memory.
It has made strides in production technology allowing it to make both smaller and faster chips per each silicon wafer.
However prices for its NAND chips, which are used for long term storage of data, have tumbled due to a saturation of supply. Prices of DRAM should follow suit said experts albeit at a much slower rate with some saying that data center demand in China will help.
DRAMeXchange a market tracker has predicted that the average prices for DRAM products would drop 5% during the fourth quarter compared to the previous quarter, which is a steeper drop that its estimates previously of up to 3%.
However, Samsung is expected to book a strong growth of 12% in operating profit during the fourth quarter, showed data. However, then it is expected a drop to minimal growth in profit for the first six months of 2019 with small declines in profit during the second six months.