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Samsung Electronics posts biggest quarterly net profit since 2013 on Chip sales

Samsung Electronics Co Ltd on Thursday flagged stronger earnings and announced a cancellation of treasury shares after posting a solid first-quarter profit boosted by the memory chip business, sending its shares to a new high.

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Children look at a mobile phone in front of an advertisement of Samsung Electronic at its store in Seoul, South Korea, April 27, 2017.
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Samsung Electronics Co Ltd on Thursday flagged stronger earnings and announced a cancellation of treasury shares after posting a solid first-quarter profit boosted by the memory chip business, sending its shares to a new high.

The South Korean tech giant also decided not to adopt a holding company structure, rejecting a call from US activist hedge fund Elliott Management to split itself in two.

It did however accept part of Elliott's proposal, revealing plans to cancel its existing treasury shares worth over $35 billion to enhance shareholder value by 2018. It also announced a share buyback worth 2.3 trillion won.

Samsung Electronics shares were trading up 1.5 percent at a record high while the wider market was down 0.3 percent.

"The cancellation of the entire existing shares held by the company was unexpected, and helped boost Samsung Electronics' share price along with its positive earnings outlook," fund manger Park Jung-hoon at HDC Asset Management said.

While the first quarter was a torrid time for Samsung as chief Jay Y. Lee was swept up in a political corruption scandal, the world's top maker of memory chips, smartphones and televisions still managed to book a profit that supports expectations for record earnings in 2017.

First-quarter operating profit for Asia's most valuable company by market capitalisation was 9.9 trillion won ($8.75 billion), matching Samsung's earlier guidance. Revenue rose 2 percent to 50.5 trillion won.

A memory chip super-cycle and the revival of the mobile business - damaged by the costly failure and fire-prone Galaxy Note 7 last year - look set to underpin profitability after the best quarterly result since 2013.

"Looking ahead to the second quarter, the company expects to achieve growth on the back of continued robust memory performance together with improved earnings from the mobile business" following the global rollout of the new Galaxy S8 smartphone, Samsung said in a statement.

CHIPS SIZZLE

Samsung's chip business remained the top earner with a record 6.3 trillion won operating profit, buoyed by price gains for both DRAM and NAND memory chips as supply growth constraints and demand for more firepower on devices such as smartphones and servers boosted margins.

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