Samsung profit jumps by nearly half on strong smartphone sales

South Korea, Seoul: Samsung Electronics, a South Korean technology conglomerate, announced on Thursday that net profits increased nearly 50% in the first quarter, owing largely to strong sales of its smartphones and home appliances due to sustained stay-at-home demand.

The company is the flagship subsidiary of the massive Samsung group, which is by far the largest of the family-controlled empires known as chaebols that dominate business in South Korea, the world's 12th largest economy.

The conglomerate is critical to the South's economic health; its total turnover is equal to one-fifth of the national GDP.

According to Samsung Electronics, net income increased 46.3 percent year on year to 7.1 trillion won ($6.4 billion) in January-March.

"Solid sales of smartphones and consumer electronics outweighed lower earnings from semiconductors and displays," the firm said in an earnings report.

The figures were released a day after Samsung's controlling Lee family revealed plans to pay more than $10 billion in inheritance taxes following the death of chairman Lee Kun-hee last year – one of the world's largest-ever such settlements – and donate a vast collection of art, including works by Picasso and Monet.

The coronavirus has wreaked havoc on the global economy, causing lockdowns and travel bans to be enforced all over the world for months.

However, the pandemic, which has killed over two million people worldwide, has seen many tech companies thrive, including Samsung.

Working from home has increased demand for devices powered by Samsung's chips, as well as home appliances such as televisions and washing machines.

"Pent-up demand has led the growth in home appliances," said James Kang, a senior researcher at Euromonitor International.

"But once the coronavirus situation improves with the distribution of vaccines, the growth of home appliances will be slower than 2020 as people spend more time outdoors," he added.

Operating profit increased by 45.4% to 9.4 trillion won, while revenue increased by 18.2% to 65.4 trillion won.

Pardon call

According to analysts, the company has benefited particularly from the release of its Galaxy S21 series in January, more than a month ahead of the flagship product's normal annual launch schedule.

"Samsung continues to be the largest manufacturer, shipping 77 million smartphones globally in the first quarter, up 32% year on year," said Neil Mawston, executive director at Strategy Analytics.

"Samsung's newly launched more affordable A series 4G and 5G phones, and the earlier launched Galaxy S21 series combined drove solid performance in the quarter."

However, growth may be hindered in the second quarter due to a global chip shortage crisis and a drop in market demand caused by the pandemic, according to Jene Park, a researcher at Counterpoint Research.

"In the case of Samsung, its key components are procured in-house, so manufacturing should be reasonably smooth compared to other firms," Park told AFP.

"However, Samsung's Q2 earnings will be adversely affected by the aftermath of Covid-19 in its major markets, such as India," he added.

According to Taipei-based market tracker TrendForce, the global chip manufacturing industry was expecting record sales this year, with the stay-at-home economy persisting.

However, power outages in Texas, triggered by a strong winter storm, forced the closure of semiconductor factories clustered around Austin in February, including Samsung's.

"The production line in Austin has been fully normalized in the second quarter," Samsung said, with the South's Yonhap news agency reported the company may suffer around 400 billion won ($357 million) because of the plant's month-long shutdown.

Lee Jae-Yong, the firm's de facto chief and the late chairman's uncle, was imprisoned in January in connection with the sprawling corruption scandal that brought down former President Park Geun-hye.

He is also facing a separate trial over charges such as stock manipulation to ensure a smooth succession of control.

According to experts, a leadership void may impede the firm's decision-making on potential large-scale acquisitions, which have been critical to its rise.

Earlier this week, five big South Korean business organizations petitioned the presidential Blue House for his pardon on national economic grounds.

LG Electronics, South Korea's second-largest electronics manufacturer, also reported earnings on Thursday, with first-quarter net profits rising 8.1 percent year on year to 1.52 trillion won.

According to the company, the results represent "very strong demand for LG home appliances and home entertainment items as consumers around the world continue to spend more time at home."

In Seoul, Samsung Electronics shares fell 0.49 percent, while LG Electronics fell 1.22 percent.

Share this story