Samsung profit tops estimates as S7 keeps winning customers

Operating income rises to 8.1 trillion won as demand for Galaxy S7 helps turn around mobile devices business


Shares of Samsung Electronics have surged nearly 20% since January. 
Photo: Reuters
Shares of Samsung Electronics have surged nearly 20% since January. Photo: Reuters

Seoul: Samsung Electronics Co. posted better-than-anticipated profit as continued demand for its Galaxy S7 smartphones helps turn around its mobile devices business.

Operating income rose to 8.1 trillion won ($6.9 billion) in the three months ended June, the world’s largest maker of phones and memory chips said in preliminary results released on Thursday. That compares with the 7.38 trillion-won average of analysts’ estimates compiled by Bloomberg and 6.9 trillion won a year earlier.

Galaxy S7 models have capitalized on a lull in new iPhones from Apple Inc., helping to boost profit margins at the South Korean company and stoking demand for its components. That’s helped the biggest maker of devices using the Android operating system defy a slowdown in the smartphone market.

“S7 smartphones turned out to be a greater hit than what the market had thought without competing iPhones,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul. “Samsung’s end-user products, such as smartphones and TVs, all performed unbelievably well in the first half and looks like they did a lot of cost reduction.”

Revenue was 50 trillion won in the quarter, the Suwon-based company said, compared with the 50.9 trillion won analysts expected. Samsung won’t provide net income or break out divisional performance until it releases audited results later this month.

Shares of Samsung have risen 13% in 2016, putting them on track for their first annual increase in four years.

Samsung probably sold 15 million units of the S7 in the June quarter after selling 10 million in March when it debuted, said Greg Roh, an analyst at HMC Investment Securities in Seoul.

Operating profit at the mobile unit probably rose 53% to 4.23 trillion won in the second quarter, according to the average estimates of six analysts surveyed by Bloomberg News. Higher sales of the S7 Edge with a wraparound screen, compared with the flat version, along with solid demand for cheaper models helped earnings grow.

In the absence of a new iPhone, many carriers boosted marketing spending to drive purchases of the S7, shifting the cost of promotion away from Samsung.

“Marketing cost is under control,” said Peter Yu, a Seoul-based analyst at BNP Paribas SA in Seoul.

Operating income at the semiconductor business probably fell about 25% to 2.55 trillion won in the June quarter on sales of 11.2 trillion won, according to the analyst survey. Slackening demand for personal computers and smartphones have pressured chip prices and outweighed rising orders of storage chips from company clients.

The company’s display division, which also makes screens using organic light-emitting diodes, probably posted a profit of 170 billion won, reversing from the 270 billion won loss recorded in the previous quarter, according to the Bloomberg survey.

Stronger profit from OLED as more smartphone makers adopt the technology helped the make up for losses from liquid crystal displays.

Samsung has held exclusive talks to supply OLED screens for iPhones due in 2017, people familiar with the matter have said. The company may also bring out its own phones with bendable screens as early as next year, people familiar have said.

“Investors expect the smartphone-tablet hybrid device that is made of flexible OLED technology could be a game changer,” Peter Lee, an analyst at NH Investment and Securities Co. said in a 20 June report. “Especially, they seem to have higher hopes on foldable smartphones.”

Continued price declines of LCD panels also propelled sales of televisions.

Operating profit at the consumer electronics division, which encompasses TVs and appliances, probably more than tripled to 770 billion won, according to the analyst survey.

“I am not sure if the end-user product sales growth can be sustainable throughout the latter half of the year but the component businesses will give a leg up,” said IBK’s Lee. Bloomberg

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