Samsung Electronics recorded the highest system semiconductor sales in the first quarter of the year while maintaining the operating profit above six trillion won on the strength of increasing demand for semiconductors for personal computers and servers due to COVID-19 and new luxury smartphone launches. However, the South Korean tech company expects to see a decrease in both metrics in the second quarter as the impact of COVID-19 on global demand and production materializes. Samsung Electronics is growing its system semiconductor business as its new growth engine.
Samsung Electronics said on Wednesday that its operating profit increased by 3.4 percent year-on-year to 6.45 trillion won in the first quarter of the year, while its sales went up by 5.6 percent to 55.33 trillion won.
The sales growth was driven by semiconductors. The sales of semiconductors rose to 17.64 trillion won, 21.9 percent higher than last year with the system semiconductor sales reaching a new record high at 4.5 trillion won. It was the first time that the system semiconductor took up more than 25 percent of the entire semiconductor business, a result of months of sales efforts after Samsung Electronics set a new goal in April last year to be the world’s largest system semiconductor producer by 2030. “Demand for memory semiconductors for servers and personal computers also increased as more people work and study from home,” said Han Jin-man, senior vice president at Samsung's chip business.
While the semiconductor sales have increased over the period from the previous year, the operating profit went down by 3.2 percent to 3.99 trillion won. The profitability of system semiconductors is not high even though its sales are increasing, and the price of memory semiconductors fell sharply. However, the operating profit rose by 15.7 percent compared to the fourth quarter of last year when demand for semiconductors was extremely low.
Samsung Electronics has decided to provide 80.5 billion-won worth of incentives for excellent first- and second-tier suppliers. The company offers the incentive to suppliers twice a year for mutual growth. This year, Samsung will provide the largest incentives yet by increasing the incentives by five billion won from last year.
“Our performance would worsen in the second quarter despite the rising demand for servers,” Samsung Electronics said in a conference call on Wednesday. “Amid the prolonged COVID-19 pandemic, falling demand for smartphones and home appliances will be reflected in the figures for the second quarter of the year.”