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Samsung proves resilience with earnings surprise

Strong sales of Galaxy S7 boost tech giant’s Q1 net profit

Tech giant Samsung Electronics has posted surprising earnings in the January-March period on the back of strong sales of its mobile devices, beating market estimates.

Its net profit jumped 13.6 percent to 5.25 trillion won ($4.56 billion) in the first quarter, according to the company’s regulatory filing on Thursday. The firm’s operating profit came to 6.68 trillion won -- higher than the market estimate of some 5 trillion won -- with its revenue standing at 49.8 trillion won. The figures were up 11.65 percent and 5.65 percent on-year, respectively.

Samsung Electronics’ Galaxy S7 Edge. (Yonhap)
Samsung Electronics’ Galaxy S7 Edge. (Yonhap)

The IT and mobile communications division, which oversees the company’s smartphone business, saw its operating profit jump 42 percent on-year to 3.89 trillion won, taking up nearly 60 percent of the firm’s operating profit.

The improvements in profits came as a surprise as many critics had often predicted that the glory days of the world’s largest handset maker as well as Apple of the U.S. are nearing their end due mainly to dog-eat-dog competition in the global smartphone sector.

Apple saw its revenue drop for the first time in 13 years in the fiscal second quarter that ended March 26, due to lackluster sales of its iPhones.

Samsung, however, has been showing resilience to keep its throne. Samsung said its marketing scheme for the Galaxy S7 that pushed forward the release date of its flagship Galaxy handset a month earlier than usual nailed it.

“This increase (in operating profit of the mobile business) was largely due to the early launch and strong global performance of the flagship Galaxy S7 and S7 edge, as evidenced by robust sell-out figures and low inventory levels compared to their predecessors,” the company said.

The company expected that sales of its smartphones and tablet PCs would remain flat due to seasonal factors in the second quarter, saying it would try to maintain sales momentum with mid- and low-range smartphones, including its Galaxy A and J lineups.

Some market watchers forecast Samsung’s profit recovery in the mobile business will likely be short lived.

“We think that a meaningful improvement in the smartphone business over the long term is unlikely due to ever-increasing competition and narrowing product differentiation as lower-cost competitors’ handsets improve. We expect handset margins to decline, reflecting greater competition and weaker demand growth,” global ratings agency Fitch Ratings said in a report.

Meanwhile, Samsung’s businesses for semiconductor and display products saw their operating profits decrease.

The semiconductor business posted an operating profit of 2.63 trillion won while the display business logged an operating loss of 270 billion won, down 0.3 percent and 0.79 percent on-year, respectively.

Some critics cited the price drop of DRAM and competition in the world’s semiconductor market as affecting Samsung’s chip business, while profits for the display business worsened due to mediocre demand in the liquid crystal display segment.

The consumer electronics division saw its operating profit increase slightly up by 0.7 percent on-year to 510 billion won.

The Seoul-based tech giant said it would try to focus on improving profitability with premium TV products during the upcoming Olympics and other sporting events, which it said would drive global demand for large-size TVs.

Samsung spent 2.1 trillion won of capital expenditure on its display business, which is thought to have been spent on ramping up its production facilities, including those for OLED displays. Samsung is rumored to be supplying flexible displays for Apple’s next iPhones.

Samsung said It would beef up its core businesses, including semiconductor, display and consumer electronics, by rolling out cutting-edge products.

Among the products are 14-nanometer chips, ultra high-definition TVs and solid storage drives equipped with up-to-date 3-dimensional NAND Flash memory chips, all of which are top-notch technologies coveted by other market players in respective sectors.

In an apparent move to shore up its share price as well as increase dividends for investors, Samsung said on Thursday it would buy an additional 1.3 common stocks and 320,000 preferred shares for three months and more until the end of this year.

The company, which had announced that it would buy back 11 trillion won worth of stocks in total last October, has repurchased 7.4 trillion won worth of stocks so far.

By Kim Young-won (wone0102@heraldcorp.com)
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