Samsung Cashes In on Chips to Hit Another Record Profit

Samsung Electronics Co. delivered its third consecutive quarter of record results, owing to robust demand for its memory chips, though operating profit at its smartphone unit fell.

The Suwon, South Korea-based tech company said fourth-quarter net profit rose 42% to 12.26 trillion South Korean won ($11.4 billion) from 7.09 trillion won a year earlier.

The world's largest smartphone maker said revenue rose to 65.98 trillion won from 53.33 trillion won a year earlier. Operating profit was 15.15 trillion won, an all-time high.

Samsung also approved a 50-to-1 stock split in response to claims that its "high share price was a hindrance to potential investors." Samsung shares rose 4.6% early Wednesday in Seoul to 2,607,000 won. The company's shares have risen about 26% over the past year.

The company's smartphone shipments fell in the fourth quarter from the third. Operating profit for the mobile handset division fell slightly to 2.42 trillion won from 2.50 trillion won a year earlier. Samsung blamed higher marketing costs for the decline.

Samsung's flagship devices, like the Galaxy Note 8, which compete with Apple Inc.'s iPhone, saw sales increase, the company said.

The Galaxy Note 8 and the new iPhone X pushed phone prices up to the $1,000 mark, testing whether consumers would pay premiums for the latest gadgets. On Tuesday, The Wall Street Journal reported that Apple is cutting planned production for the iPhone X for the three-month period ending March 31, a sign of weaker-than-expected demand.

Not long ago, smartphones were Samsung's cash cow. But the bulk of profits now come from memory chips because of the proliferation of internet-connected devices and servers. That has helped Samsung to keep profits up despite a leadership vacuum. The company's de facto leader is behind bars, its chairman is incapacitated and it replaced its three CEOs in the fall.

Samsung awaits an appeals-court verdict next week for Lee Jae-yong, the grandson of the company's founder, who was convicted in August for bribing South Korea's former president and sentenced to five years in prison. Mr. Lee has denied wrongdoing.

But the firm's financial results are in order. Samsung has benefited from a surge in memory chip prices because only a few large semiconductor makers remain after a decade of consolidation. Analysts refer to the current phase as a memory-chip "supercycle" that should remain strong through this year, though some believe it has peaked.

The prices of two main types of memory chips--where Samsung is the largest producer--have more than doubled over the past two years, according to DRAMeXchange.

For the full year, Samsung racked up an operating profit of 53.65 trillion won and revenue of 239.58 trillion won in 2017.

Samsung sought to extend its lead in semiconductors by spending $44 billion on capital expenditures in 2017--more than any other publicly traded company last year, according to S&P Global Market Intelligence estimates.

Consumers were mostly undeterred from an embarrassing global recall of Galaxy Note 7 devices in 2016, a debacle that cost it about $6.5 billion. Initial sales of its flagship phones, the Galaxy S8 and the Galaxy Note 8, were among the strongest in Samsung's history, the company has said.

Samsung's washing machine sales in the U.S. face a challenge from new tariffs approved last week by the Trump administration. LG Electronics Inc., Samsung's South Korean rival, told retailers last week it would raise prices on laundry appliances. Samsung has said it was reviewing the matter but has given no indication on future pricing.

While the business unit that includes washing machines and other home appliances represents about a sixth of Samsung's revenue, it accounted for less than 5% of operating profit in recent quarters.

Write to Timothy W. Martin at timothy.martin@wsj.com

(END) Dow Jones Newswires

January 30, 2018 20:15 ET (01:15 GMT)