Despite COVID-19... Samsung and LG Electronics Expected to Perform Well in Earnings

[Asia Economy Reporter Changhwan Lee] Despite the severe impact of the novel coronavirus disease (COVID-19) on the Korean economy, Samsung Electronics and LG Electronics are expected to announce solid first-quarter earnings. Although smartphone sales have been sluggish due to COVID-19, semiconductor and certain home appliances with virus sterilization functions are reportedly benefiting from a positive spillover effect.

According to industry sources on the 30th, major domestic electronics companies such as Samsung Electronics and LG Electronics will announce their preliminary first-quarter earnings next week. The industry expects the electronics sector to report relatively strong results compared to other industries.

According to financial information firm FnGuide, Samsung Electronics' preliminary average (consensus) revenue forecast for the first quarter is KRW 55.7791 trillion, a 6.5% increase compared to the same period last year. However, operating profit is expected to be KRW 6.131 trillion, a 1.6% decrease year-on-year.

The smartphone (IM) division, which has been directly hit by the consumption slump caused by COVID-19, is estimated to have experienced a decline in performance. The IM division's first-quarter revenue and operating profit are estimated to have decreased by about 10% compared to the previous year.

Samsung Electronics launched the Galaxy S20 and the latest flagship smartphone Z Flip in the first quarter, but sales are understood to have fallen significantly short of expectations due to COVID-19. The sluggish smartphone sales are also believed to have negatively impacted the display (DP) division's business.

However, the semiconductor (DS) business, which accounts for more than half of Samsung Electronics' operating profit, is expected to perform well. Prices for memory semiconductors such as DRAM and NAND flash have maintained an upward trend, and the increase in remote work and telecommuting due to COVID-19 has significantly boosted demand for server semiconductors.

Dongwon Kim, a researcher at KB Securities, explained, "The increase in remote work and video conferencing due to COVID-19 has led to increased internet data traffic and demand for new server expansions," adding, "Semiconductor demand is rising while supply is limited, causing semiconductor prices to increase, which presents an opportunity for Samsung Electronics."

LG Electronics is also expected to report decent results. LG Electronics' preliminary average (consensus) revenue forecast for the first quarter is KRW 15.5453 trillion, with operating profit expected at KRW 867.5 billion. Compared to the same period last year, revenue is expected to increase by 4.3%, while operating profit is expected to decrease by 3.7%.

Due to COVID-19, home appliances with sterilization functions such as stylers, air purifiers, air conditioners, and dishwashers are performing better than expected. In particular, styler sales surged by more than 30% year-on-year last month. Sales of air purifiers and dishwashers are also reported to have increased significantly compared to the previous year.

Boyeong Choi, a researcher at Kyobo Securities, stated, "Due to the impact of COVID-19, sales of hygiene appliances such as air purifiers and vacuum cleaners are strong, and new growth appliances like stylers and rental businesses are steadily growing, leading to expected solid first-quarter earnings."