Samsung beats COVID projections; Expects double-digit increase in profits

By Rahul Vaimal, Associate Editor
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Samsung Electronics
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Samsung Electronics Co. has reported an unexpected earning projections in its earnings guidance for the second quarter of 2020 revealed today. 

An earnings guidance or simply guidance in the financial sector is an official prediction by a publicly traded corporation about its own near-future profit or loss.

The Korean company’s operating profit likely increased at least 23% compared to the same time period last year to reach $6.8 billion. Moreover, it beats the prediction made through Refinitiv SmartEstimate which had estimated an operating profit of $5.3 billion.

Experts attribute this improvement to an increase in the number of people working from home that has spiked the demand for personal chips used in servers and computers. It is also possible that the global brand spent less on marketing as travel restrictions continue to be in place.

Samsung also posted a one-time gain, which is estimated to be a huge amount, through its display business.

But, this doesn’t mean that the COVID-19 pandemic has no effect on Samsung. The company’s revenue for the April-June quarter is expecting a 7% fall to reach $43.6 billion.

Initially, the increased operating profit was deemed as good news, and Samsung’s shares rose more than 1% immediately. But as the news was digested, its shares fell more than 2%, later in the day.

What sounded wrong? The one time gain that Samsung is expecting as compensation from Apple is for fewer-than-promised orders for screens that are used in its devices including the iPhone and iPad. The compensation is estimated to be $840 million and is bad news for the technology industry.

Because it reveals that there is weaker demand for gadgets. Earlier, Foxconn Technology Group’s Hon Hai Precision Industry Co., which assembles iPhones had posted a 9.1% fewer sales in June. It is most unfavorable because it is traditionally the low season for iPhone sales and the drop in demand is likely for other Apple products like servers, computers and data center equipment.

It is befuddling as it is in contrast with the market scenario. Currently, Apple shares are enjoying an all-time high while Amazon recorded a market value of $1.5 trillion. With the pandemic having shaken the world economy such contrasts are likely to keep coming.

Samsung hopes for a strong third-quarter ending in September with an overall increase in the memory-related product sales and the shipment of smartphones. Supplying display parts to iPhone12 is also likely to contribute to this.