Samsung Reaps Record Profit, but Tougher Times Could Come

Posted October 30, 2018 10:31 p.m. EDT

Samsung Electronics, the South Korean giant, on Wednesday reported a roughly one-fifth increase in operating profit for the latest quarter from a year earlier, sending profit to a new high of around $15 billion.

But industry observers say the driving force behind the company’s recent performance — a boom in memory chips, fueled by soaring demand for data centers and smartphones — is looking wobbly.

Samsung is the world’s largest smartphone maker, but it also makes many of the computer chips, camera sensors and displays that go into other companies’ devices. That has positioned it to prosper even from the success of rivals like Apple.

Of late, though, demand for smartphones and other consumer electronics has been plateauing. And as memory-chip producers — Samsung included — have invested in operations to expand production, supply is catching up.

The question is how much, and how quickly, the prices of memory storage will fall. Samsung’s share price has already dropped about one-sixth this year.

C.W. Chung, an analyst in Seoul with Nomura Securities, said that, paradoxically, signs of strength this year in the memory market have only filled Samsung’s investors with more concern. They figure that any upswing only means that the eventual fall could be even steeper.

“Like a roller coaster, the higher you go, the dizzier people feel,” Chung said.

Samsung also faces competition from China, where state-backed firms are angling to become major memory suppliers.

Samsung’s shares rose Tuesday after the U.S. Department of Commerce put sanctions on Fujian Jinhua, a rising Chinese chipmaker that has been accused of stealing intellectual property from a U.S. rival, Micron. Washington’s move blocks Jinhua from importing U.S. technology, including semiconductor manufacturing equipment.

Meanwhile, Samsung’s mobile phone business has been stagnant. Consumers around the world are not replacing their smartphones as often, and they seem less enthralled by the latest and most expensive devices. Samsung’s own recent top-shelf offerings have failed to dazzle, leading executives to talk about adding whiz-bang features such as foldable screens.

According to Chung of Nomura, Samsung became cautious after the multibillion-dollar recall of its fire-prone Galaxy Note 7 phone two years ago.

“They were hesitant to adopt new features and new technology, because if they made more mistakes, they would be in a very bad situation,” he said. “Now is the time Samsung has to come back.”