A consumer looks at a smartphone display in Moscow, Russia. Huawei's top ranking in the sector may be short lived, analysts warn. Photo: AFP

There was good and bad news for South Korean electronics giant Samsung on Thursday. Its second-quarter earnings surged but Chinese rival Huawei tipped it off the number-one spot in quarterly smartphone sales for the first time.

According to a report by research firm Canalys, Huawei shipped more smartphones globally in Q2 2020 than any other player. It was the first quarter in nine years that any firm other than Apple or Samsung has been market leader.

Huawei shipped 55.8 million devices, down 5% year-on-year while second-ranked Samsung shipped 53.7 million, a 30% fall.

Though he called it “a remarkable result,”  Canalys senior analyst Ben Stanton put Huawei’s success down to Covid-19.

“Huawei has taken full advantage of the Chinese economic recovery to reignite its smartphone business,” Stanton said. “Samsung has a very small presence in China, with less than 1% market share, and has seen its core markets, such as Brazil, India, the United States and Europe, ravaged by outbreaks and subsequent lockdowns.”

Huawei is China’s high-tech flagship firm but is also at the epicenter of a cross-Pacific trade war. As such, it is also the subject of a global diplomatic tug-of-war as Washington seeks to compel or coerce its allies not to buy from Huawei. The US contends that Huawei products – notably smartphones and 5G network equipment – represent a tangle of  security risks.

Another Canalys analyst, Mo Jia, said the global top spot placing would provide a powerful boost to Huawei’s brand but warned that its time in the sun could be short.

“It will be hard for Huawei to maintain its lead in the long term,” Jia said, noting that partners in key battlegrounds such as Europe are wary of the company. “Strength in China alone will not be enough to sustain Huawei at the top once the global economy starts to recover.”

These geopolitical issues could quietly deliver positive business outcomes to Samsung as it competes with Huawei around the world.

Meanwhile, beyond the smartphone space, Samsung is having a very good pandemic.

Profits take flight

Samsung’s profits for the second half of 2020 soared on high demand for memory chips, appliances and display panels, the company announced Thursday.

Net profits for Q2 stood at 5.55 trillion won ($4.7 billion), up 13.7% on-quarter and up 7.23% on-year, the company said in a regulatory filing. Quarterly operating profit, at 8.15 trillion won ($6.8 billion) rose 26% quarter-on-quarter and 23% year-on-year, the company announced in a statement on its website.

The company is enjoying a double-barreled blast of good fortune.

Firstly, the semiconductor supercycle is rebounding from its trough in 2019. Secondly, lockdowns across much of the world in the first half have driven massive demand for online services, forcing related companies to upgrade digital storage and acquire memory chips.

Samsung is a multi-pronged operation with roles in all areas of electronics. Its key business divisions are memory semiconductors and smartphones but it also produces system semiconductors, panels, electronic appliances and TVs. This makes it something of an industry weathervane.

In its statement, the electronics giant said its robust results were driven by memory chips and appliances, and a one-off gain at its display panel business.

The company did not elaborate on the latter, but Korean and trade media have speculated that it was a sale to Apple.

The Q2 memory chip surge was led by solid demand from datacenters and PCs, though there was slower demand for mobile memory, Samsung wrote. And while smartphone and large monitor sales were down, appliance sales were up.

Gradual recovery upcoming

Looking ahead to the second half of 2020, Samsung anticipates gradual recovery in demand for mobile devices and consumer electronics.

Regarding memory chips, it anticipates revived demand for mobile and graphic memory, driven by new smartphones and game consoles.

As for system semiconductors – a high-value sector in which Samsung is making a major push – the company said it will focus on expanding sales of key products such as high-resolution sensors and 5G system-on-chips.

In the smartphone space, Samsung  will unveil new flagship smartphones including the Galaxy Note and a foldable phone, while pushing sales of mid-tier models. The company expects the overall smartphone market to witness intensifying competition amid a gradual recovery in demand in the second half .

 For display panels, a a fully-fledged rebound in earnings from mobile displays is expected in Q4, as a recovery in mobile phone demand during the third quarter will likely be limited to mid and low-end models, Samsung said.