(Bloomberg) — Samsung Electronics Co.’s fourth-quarter profit missed analysts’ estimates after the company distributed a special bonus and increased spending on advanced production technology for chips and displays.
South Korea’s biggest company had its fourth successive record quarter of sales in the final three months of the year, with net income rising to 10.64 trillion won ($8.9 billion), according to a statement Thursday. Analysts predicted 11.1 trillion won on average, according to estimates compiled by Bloomberg. Samsung disclosed preliminary numbers earlier this month, including a more than 50% increase in operating profit. The company paid special bonuses to employees in late December.
Shares were little changed in early trading Thursday.
Shares of Samsung and memory-making rival SK Hynix Inc. fell in the latter half of last year on fears about price volatility, rising inventories and a cyclical downturn. Price drops proved more moderate than expected, however, as chip usage broadened across industries and memory makers took preemptive steps to stabilize supply and forestall price shocks. Samsung’s foundry business — producing chips for customers without their own semiconductor plants — is also helping stabilize revenues.
Samsung has expressed optimism about sustained demand for its chips through this year and is spending to accelerate development and expand production of its latest technology. Both memory and foundry divisions will require more of ASML Holdings NV’s pricey extreme ultraviolet lithography machines, which are hotly contested among chipmakers.
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“Samsung likely sold fewer memory chips in the fourth quarter while prices were higher than our projections as it strategically shifted away from selling low-end products to guard against steep price declines,” Lee Su-bin, an analyst at Daishin Securities, said before the results were announced. “Early costs for high-volume production of advanced chips likely added to the bill.”
Samsung has seen a familiar dynamic across its businesses of rising demand — but also increasing expenses that undercut profitability. In the mobile business, for example, revenue rose but marketing costs affected profits. The company saw record revenue from its foundry business, but the costs of new equipment clipped profits.
The company said its capital expenditures in 2021 reached 48.2 trillion won, including 43.6 trillion won for semiconductors. Samsung’s $36.3 billion in capex spending for chips compares with the $30 billion spent by TSMC.
A lockdown in the central Chinese city of Xi’an in December pushed Samsung to adjust operations at its NAND production plant and also affected output at rival Micron Technology Inc.’s facility in the city. That’s raised expectations that memory prices could rebound earlier than expected if the Chinese government’s quarantine measures continue. Analysts project prices may stabilize from the second quarter at the earliest.
“To mitigate potential risks in logistics, NAND Flash buyers are now more willing to accept a narrower decline in contract prices in order to obtain their products sooner,” TrendForce said in a Jan. 24 note. “However, as the Xi’an lockdown has not noticeably affected the local fabs’ manufacturing operations, the movement of NAND Flash contract prices going forward will likely remain relatively unaffected by the lockdown.”
Samsung said it normalized operations of its chip production line in Xi’an from Wednesday as the Covid situation improved.
The Korean giant dethroned Intel Corp. and claimed the world’s largest chipmaker title in terms of revenue for the first time since 2018, according to Gartner. Samsung’s semiconductor sales rose 31.6% last year and it accounted for 13% of global semiconductor market share, while Intel made 0.5% growth and took 12.5% of market share, the research firm said.
(Updates with stock trading in third paragraph)
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