Working at Home is helping Samsung – for Now

World’s largest memory-chip maker has likely benefited from strong cloud-computing demand, but the boost may not survive an economic downturn

By guesrt author Jacky Wong from Wall Street Journal

Caption courtesy by Wall Street Journal

Social distancing has been good for Samsung so far. But the company’s prospects depend on the state of the global economy after it emerges from shutdown.

On April 7, 2020, the world’s largest maker of memory chips and smartphones delivered better-than-expected preliminary results for last quarter: sales up 5 % from a year earlier, operating profit up 3%. There is no breakdown of the earnings—full results will be released later this month—but demand for memory chips used in servers probably helped overcome the presumed lockdown-related hit to smartphone and consumer-electronics sales. Semiconductors accounted for half of Samsung’s operating profit in 2019.

Graph courtesy by Wall Street Journal

Demand for servers from cloud services has picked up as more people work from home, play games and buy goods online. Memory-chip prices in the first quarter were up in the low single digits from the quarter before, according to market-research firm TrendForce. And memory-chip manufacturing is highly automated, helping maintain supply through business disruptions.

But more-challenging times could lie ahead for Samsung. Smartphone sales may worsen: The U.S. and Europe—important markets for Samsung—didn’t go into lockdown until the last month of the quarter. That could weaken demand both for memory chips and for displays, the single costliest smartphone component and another important segment for Samsung.

And while more people working from home has temporarily boosted demand for servers, an economic slowdown could weaken it longer-term. The looming uncertainty threatens spending on technology infrastructure. Half the chief information officers surveyed by Morgan Stanley late last month said they have cut information-technology budgets by an average of 2.6%—though cloud services remain the priority for now.

 Startups, big customers of cloud computing, have already seen reduced funding. A prolonged economic downturn could make that worse.

Samsung’s USD 77 billion cash pile will probably allow it to weather the crisis better than most, but the boost from today’s remote working and learning may not last forever.