Samsung profit up by nearly 50% on strong smartphone sales

South Korean tech giant Samsung Electronics said on Thursday that net profits rose nearly 50 percent in the first quarter, largely driven by robust sales of its smartphones and home appliances due to continued stay-at-home demand.

The firm is the flagship subsidiary of the giant Samsung group, by far the largest of the family-controlled empires known as chaebols that dominate business in South Korea, the world's 12th-largest economy.

The conglomerate is crucial to the South's economic health — its overall turnover is equivalent to a fifth of the national gross domestic product.

Samsung Electronics said net profits rose 46.3 percent in January-March from a year earlier to 7.1 trillion won ($6.4 billion).

"Solid sales of smartphones and consumer electronics outweighed lower earnings from semiconductors and displays," the firm said in an earnings report.

The figures came a day after Samsung's controlling Lee family announced plans to pay more than $10 billion in inheritance taxes following the death last year of chairman Lee Kun-hee — one of the world's biggest-ever such settlements — and donate a vast trove of art including works by Picasso and Monet.

The coronavirus has wreaked havoc with the world economy, with lockdowns and travel bans imposed around the globe for many months.

Read | Samsung heirs to donate Picasso works to settle tax bill

But the pandemic — which has killed more than two million people worldwide — has also seen many tech companies boom, including Samsung.

Coronavirus-driven working from home has been boosting demand for devices powered by Samsung's chips, as well as home appliances such as TV and washing machines.

"Pent-up demand has led the growth in home appliances," said James Kang, a senior researcher at Euromonitor International.

"But once the coronavirus situation improves with the distribution of vaccines, the growth of home appliances will be slower than 2020 as people spend more time outdoors," he added.

Operating profit rose 45.4 percent to 9.4 trillion won, while sales were up 18.2 per cent to 65.4 trillion won.

Analysts say the company has enjoyed a particular boost from rolling out its Galaxy S21 series in January, more than a month ahead of the flagship product's usual annual launch schedule.

"Samsung remains the largest vendor shipping 77 million smartphones globally in the first quarter, growing 32 percent year-on-year," said Neil Mawston, executive director at Strategy Analytics.

Also Read | Samsung's Lee family to pay more than 12 trillion won inheritance taxes

"Samsung's newly launched more affordable A series 4G and 5G phones, and the earlier launched Galaxy S21 series combined drove solid performance in the quarter."

But this growth may be hampered in the second quarter in the face of a global chip shortage crisis and a decline in market demand due to the pandemic, said Jene Park, a researcher at Counterpoint Research.

"In the case of Samsung, its main components are being procured in-house, thus its production is expected to be relatively smooth compared to other companies," Park told AFP.

"However, Samsung's Q2 earnings will be adversely affected by the aftermath of Covid-19 in its major markets, such as India," he added.

The global chip manufacturing industry had been expecting to see record revenue this year, with the stay-at-home economy persisting, according to Taipei-based market tracker TrendForce.

But power outages across Texas in the US — caused by a severe winter storm — shut down semiconductor factories clustered around Austin in February, including Samsung's.

"The production line in Austin has been fully normalised in the second quarter," Samsung said, with the South's Yonhap news agency reported the company may suffer around 400 billion won ($357 million) because of the plant's month-long shutdown.

Also Read | Samsung Galaxy M42 5G phone launched in India

The firm's de facto leader Lee Jae-yong, the son of the late chairman, was jailed in January over a sprawling corruption scandal that brought down former president Park Geun-hye.

He is also undergoing a separate trial over allegations including stock manipulation for a smooth succession of power.

Experts say a leadership vacuum could hamper the firm's decision-making on future large-scale investments, which have been key to its rise.

Earlier this week five major South Korean business groups appealed to the presidential Blue House for a pardon for him on national economic grounds.

South Korea's second-largest electronics maker LG Electronics also announced earnings Thursday, with first quarter net profits up 8.1 per cent from a year ago to 1.52 trillion won.

The result reflected "very strong demand for LG home appliances and home entertainment products as consumers around the world continue to spend more time at home", it said.

Samsung Electronics shares closed down 0.49 percent in Seoul, while LG Electronics was 1.22 per cent lower.