Quick S7 release earns Samsung surprise profit

by Jungah Lee, 2016-04-08 05:57:03.0

SEOUL — Samsung Electronics posted a better-than-expected first-quarter profit after the early release of Galaxy S7 smartphones gave it a head-start on Apple and Chinese rivals and helped counter an industry downturn.

Operating income rose to 6.6-trillion won ($5.7bn) in the quarter ended-March, the world's largest maker of phones and memory chips said in preliminary results released on Thursday. That compares with the 5.5-trillion won average of analysts' estimates compiled by Bloomberg.

Samsung debuted its high-end smartphones in March, about a month earlier than last year, with sales of the S7 line-up estimated to have hit 9-million units during their first month — triple those of the S6 in the same time frame. "The biggest reason for the sharply improved profitability is largely due to much lower marketing spending for the mobile business," said Yoo Eui Hyung, an analyst at Dongbu Securities. "The big disparity between the earlier profit estimates and the latest revisions stems entirely from the mobile business.

"The faster release surely helped, but it's dubious whether the S7 can continue to surprise the market in the longer run."

The shares finished 1.3% lower at 1,269,000 won in Seoul. The stock fell for a third straight year last year. Sales were 49-trillion won in the quarter, Samsung said, compared with the 48.8-trillion won analysts expected.

Most of Samsung's revenue is in phones, a decelerating market in which it also competes with Huawei Technologies and Xiaomi. Smartphone sales this year are expected to rise by a single-digit percentage for the first time, according to Gartner.

"The first-quarter earnings have already reached its peak for this year and it will only go lower from here," Greg Roh, an analyst at HMC Investment Securities in Seoul, said, citing depressed industry demand.

Operating profit at the mobile unit probably rose 19% to 3.25-trillion won in the first quarter, according to the median estimate of six analysts surveyed by Bloomberg News.

The popularity of the S7 and a refreshed portfolio of cheaper Galaxy models, such as the A and J series, have given the division's earnings a shot in the arm.

Samsung is continuing to reduce the number of phones in its line-up as it tries to cut spending and focus on competitive devices. Total smartphone shipments for the first three months were estimated at 78-million, compared with 82-million units during the peak holiday quarter, according to four analysts surveyed by Bloomberg.

"We expect Samsung's Galaxy S7 to be the world's best-selling Android smartphone in 2016,"said Neil Mawston, executive director at Strategy Analytics. "Samsung's range of lower-cost models, like the J series, is also selling well." Operating income at the semiconductor business probably fell about 15% to 2.5-trillion won in the first quarter on sales of 11.5-trillion won, according to the analyst survey. The S7's introduction did little to boost earnings at that unit because it came with few significant chip upgrades.

The unit had been Samsung's main driver of profit since 2014,when it began shifting its focus towards chips and displays to offset declining phones and TVs.

To revive its margins, the Galaxy maker started the mass production of more advanced dynamic-random-access-memory from February. Its new process shrinks circuit widths, which reduces the size of the chip, to produce more from each slice of silicon wafer and boost profit.

The company's display division, which also makes screens using organic light-emitting diodes for Samsung's high-end smartphones and Chinese clients, probably posted an operating loss of 160-billion won, according to the Bloomberg survey.

The slower-than-expected pace at which Samsung's moving to advanced LCD production technology is also hurting the business.

Bloomberg

EARLY BIRD: Samsung Electronics posted a better-than-expected first-quarter profit after the early release of Galaxy S7 smartphones. Picture: REUTERS/KIM HONG

SEOUL — Samsung Electronics posted a better-than-expected first-quarter profit after the early release of Galaxy S7 smartphones gave it a head-start on Apple and Chinese rivals and helped counter an industry downturn.

Operating income rose to 6.6-trillion won ($5.7bn) in the quarter ended-March, the world's largest maker of phones and memory chips said in preliminary results released on Thursday. That compares with the 5.5-trillion won average of analysts' estimates compiled by Bloomberg.

Samsung debuted its high-end smartphones in March, about a month earlier than last year, with sales of the S7 line-up estimated to have hit 9-million units during their first month — triple those of the S6 in the same time frame. "The biggest reason for the sharply improved profitability is largely due to much lower marketing spending for the mobile business," said Yoo Eui Hyung, an analyst at Dongbu Securities. "The big disparity between the earlier profit estimates and the latest revisions stems entirely from the mobile business.

"The faster release surely helped, but it's dubious whether the S7 can continue to surprise the market in the longer run."

The shares finished 1.3% lower at 1,269,000 won in Seoul. The stock fell for a third straight year last year. Sales were 49-trillion won in the quarter, Samsung said, compared with the 48.8-trillion won analysts expected.

Most of Samsung's revenue is in phones, a decelerating market in which it also competes with Huawei Technologies and Xiaomi. Smartphone sales this year are expected to rise by a single-digit percentage for the first time, according to Gartner.

"The first-quarter earnings have already reached its peak for this year and it will only go lower from here," Greg Roh, an analyst at HMC Investment Securities in Seoul, said, citing depressed industry demand.

Operating profit at the mobile unit probably rose 19% to 3.25-trillion won in the first quarter, according to the median estimate of six analysts surveyed by Bloomberg News.

The popularity of the S7 and a refreshed portfolio of cheaper Galaxy models, such as the A and J series, have given the division's earnings a shot in the arm.

Samsung is continuing to reduce the number of phones in its line-up as it tries to cut spending and focus on competitive devices. Total smartphone shipments for the first three months were estimated at 78-million, compared with 82-million units during the peak holiday quarter, according to four analysts surveyed by Bloomberg.

"We expect Samsung's Galaxy S7 to be the world's best-selling Android smartphone in 2016,"said Neil Mawston, executive director at Strategy Analytics. "Samsung's range of lower-cost models, like the J series, is also selling well." Operating income at the semiconductor business probably fell about 15% to 2.5-trillion won in the first quarter on sales of 11.5-trillion won, according to the analyst survey. The S7's introduction did little to boost earnings at that unit because it came with few significant chip upgrades.

The unit had been Samsung's main driver of profit since 2014,when it began shifting its focus towards chips and displays to offset declining phones and TVs.

To revive its margins, the Galaxy maker started the mass production of more advanced dynamic-random-access-memory from February. Its new process shrinks circuit widths, which reduces the size of the chip, to produce more from each slice of silicon wafer and boost profit.

The company's display division, which also makes screens using organic light-emitting diodes for Samsung's high-end smartphones and Chinese clients, probably posted an operating loss of 160-billion won, according to the Bloomberg survey.

The slower-than-expected pace at which Samsung's moving to advanced LCD production technology is also hurting the business.

Bloomberg

Source: Quick S7 release earns Samsung surprise profit