HONG KONG(Reuters Breakingviews) – Samsung Electronics can have Huawei’s cake and eat it too. The South Korean conglomerate expects to deliver a robust third-quarter performance, as U.S. sanctions forced its Chinese customer to stockpile chips. Taking some of its telecommunications equipment and smartphone business will be the real prize.
Operating profit in the three months to September will reach $10.6 billion, a two-year high, according to preliminary earnings guidance Samsung delivered on Thursday. Rebounding handset sales probably helped, but the company’s cash-cow semiconductor division probably got a big boost from Huawei. It had quickly been buying components ahead of restrictions recently imposed by Washington that bar the Shenzhen-based company from buying semiconductors made with American technology without a license.
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That means the windfall is likely to be a one-off. The next step will be taking a slice of Huawei’s market share. It dominates in telecom gear alongside Nokia and Ericsson. That may change, as the White House renews pressure on countries in Europe and beyond to exclude Chinese kit in their national networks on security grounds. Just last month, Samsung unveiled a near-$7 billion contract to supply U.S. carrier Verizon with network infrastructure over five years. It’s a major win for the companyâs scandal-hit heir, Jay Y. Lee, who has been trying to crack the market for years.
Smartphones are another opening. This year, Huawei dethroned Samsung as the world’s top handset maker by shipments, according to second-quarter data from industry tracker IDC. That looks unsustainable. American officials have restricted Huawei from accessing U.S. technology, including Google’s Android mobile operating system and app store. That has already hurt sales outside of China, and should help juice pandemic-hit demand for Samsung’s new $1,000 flagship model.
Samsung shares are up 7% this year, lagging the 36% jump from chip-making rival, Taiwan Semiconductor Manufacturing. Choppy demand for memory chips is one reason; Lee’s legal troubles and corporate governance issues may be another. Either way, the performance seems to underappreciate a gift from Washington that should keep on giving.
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