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Samsung Profit Misses Estimates as Stronger Won Hits Sales

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Samsung Galaxy Note 7
  • Samsung Profit Misses Estimates as Stronger Won Hits Sales

Samsung Electronics Co. reported lower-than-projected profit as it lost momentum in memory chips and faced a strengthening South Korean won.

Operating income rose to 15.1 trillion won ($14.2 billion) in the three months ended December, according to preliminary results released Tuesday. That compares with the 16.1 trillion-won average of analysts’ estimates compiled by Bloomberg. Shares of Samsung fell 1.6 percent to 2,559,000 won in early trade.

Prices for benchmark memory chips have leveled off after a year of strong gains, limiting the growth that had powered Samsung to record earnings in the past two quarters. That has combined with rise of about 7 percent in the won against the dollar in the fourth quarter to erode the value of profits earned abroad. Still, rising demand for organic light-emitting diode screens helped to fuel a rise in sales to 66 trillion won in the quarter, compared with the 67.6 trillion won analysts expected.

“The exchange rate probably undercut the earnings by 300 to 400 billion won,” said Greg Roh, an analyst at HMC Investment Securities Co. “Given special bonuses as well as a lot of marketing expenses for smartphones and televisions in the fourth quarter, we can expect a steep rise in the first-quarter operating profit to 15.9 trillion won.”

Samsung, based in Suwon, South Korea, leads in the next generation of screens called organic light-emitting diodes. It supplies OLED screens for Apple Inc.’s iPhone X even as the two companies vie for dominance in the global smartphone market.

Samsung won’t provide net income or break out divisional performance until it releases final results later this month.

Samsung’s shares hit record highs in 2017 before sliding in November after Morgan Stanley downgraded the stock citing an expected peak in the memory chips cycle and a slowdown in smartphones.

South Korea’s government this month warned about the rise in the won and said it will take steps in the case of one-sided moves in the nation’s currency.

“The won-dollar exchange rate is worrisome,” Lee Seung-woo, an analyst at Eugene Investment and Securities, said in a report before the announcement. “The first quarter earnings are expected to be 15 trillion won.”

Samsung is said to be planning to debut its new flagship smartphone, the Galaxy S9, next month, presenting Apple’s iPhone X with a sooner-than-expected challenger. Samsung is also seeking to release a phone with a bendable display to help fend off challenges from Huawei Technologies Co., Oppo and other Chinese rivals.

The company’s cash cow has been the memory business. Contract prices for 32 gigabyte DRAM server modules nearly doubled last year while prices for 64 gigabit MLC NAND flash memory chips rose 55 percent in the same period, according to inSpectrum Tech Inc.

Samsung underwent a leadership change on the heels of its record earnings in the third quarter, with CEO Kwon Oh-hyun resigning to pave the way for Kim Ki-nam, a seasoned semiconductor engineer. The company’s de facto chief, Jay Y. Lee, has been fighting allegations of corruption in court, appealing a five-year sentence given in August when he was convicted of bribing a presidential confidante to get greater control of the company.

The 49-year businessman denies the charges and is awaiting a ruling on his appeal by an appellate court on Feb. 5. Samsung Electronics, of which he is a vice chairman and board member, is the crown jewel of a conglomerate comprised of about 60 units selling selling life insurance, cargo ships and clothes.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

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Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.

PRICES

  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

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Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

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oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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