Samsung, the world’s largest smartphone and memory-chip maker, acts as an industry bellwether.
Photo: SeongJoon Cho/Bloomberg NewsSamsung Electronics Co. provided some hope that the business slowdown spurred by the coronavirus pandemic might only moderately dent one of the world’s largest technology companies, delivering a profit forecast above analysts’ expectations Tuesday.
The South Korean giant’s projected 2.7% rise in first-quarter operating profits provides one of the first corporate indicators of how large an impact the coronavirus will have both on the global technology market and the broader economy. The global shift to remote working lifted demand for Samsung-made memory chips that power data centers and cloud computing, analysts say.
Samsung, the world’s largest smartphone and memory-chip maker, acts as an industry bellwether because it is intricately knitted into the global marketplace as both manufacturer and supplier. The company reports full results later this month.
On Tuesday, Samsung estimated an operating profit of 6.4 trillion South Korean won ($5.2 billion), compared with 6.23 trillion won at the same time last year. The South Korean electronics giant also said it expects to report 55 trillion won in revenue compared with 52.39 trillion won for the prior year’s quarter.
Analysts had forecast about 6.2 trillion won in operating profit and 55.6 trillion won in revenue, according to estimates gathered by S&P Global Market Intelligence. The company’s expected dip in smartphone sales was padded somewhat by an expected resurgence in memory-chip demand, which had been forecast to rally after a slump throughout 2019.
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Before the virus upended the global economy, the company had banked on increased demand in 5G-enabled phones, particularly in its newly released S20 flagship line, and interest in its splashy Galaxy Z Flip foldable phone to lift lagging handset sales. As recently as February, some analysts were expecting first-quarter earnings to reflect an early consumer referendum on those new offerings.
But the far-reaching coronavirus scrambled nearly all projections for the company, as the pandemic snarled global supply chains, depressed smartphone sales and closed facilities. Samsung was forced to temporarily close some facilities in Korea and elsewhere abroad, like India and Brazil.
Samsung’s stock price, like those of its competitors, has dived since the beginning of the year amid global instability in the markets. It rose slightly Tuesday by slightly over 3%.
For now, the economic disruption comes with a short-term silver lining, as more people work from home and put strain on internet networks to stay connected. That has elevated demand for Samsung’s memory chips as datacenters and cloud services that rely on the company’s components face increased pressure for better performance, said Nam Hyung Kim, a Los Angeles-based analyst with Arete Research Services.
“Everyone is working at home, studying at home, everyone is buying stuff from Amazon online,” Mr. Kim said. “This is a very big structural tailwind for cloud datacenter players.”
The full impact of the coronavirus on the memory-chip market may not be known for another month and the brunt could be felt into the fall and winter quarters. This matters to Samsung, which derives about half of its operating profits from components.
How well or poorly the Suwon, South Korea-based Samsung will fare in the long run remains to be seen. Although South Korea has been internationally lauded as a leader in rigorous testing and treatment for Covid-19 cases, a growing uptick of cases in the Seoul metropolitan area has sparked worries of a second wave. Most of the company’s lucrative memory-chip production is based in factories at home, meaning another surge in cases could make Samsung’s chips operations particularly susceptible.
Samsung’s global sprawl means it is more exposed to the setbacks of other nations as they grapple with the virus. Its manufacturing operations farther afield—particularly in emerging markets like India and Vietnam—have been beset by shutdowns and lockdowns.
The pullback in spending, both by consumers and companies, dulls purchases of everything from refrigerators to laptops to smartphone displays.
“The big unknown part is consumer demand, TVs, smartphones—those things will recover when things normalize,” said Mr. Kim, the Arete analyst. “There’s a lot of uncertainty still.”
Write to Elizabeth Koh at Elizabeth.Koh@wsj.com
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