Galaxy 7 brightens Samsung’s outlook

Models hold Samsung Electronics Co.'s Galaxy S7 and Galaxy S7 Edge smartphones for photographs during a media event in Seoul, South Korea, on Thursday, March 10, 2016. Samsung's latest Galaxy S7 smartphones will go on sale on March 11 in its latest attempt to breathe life into its premium line and wrest ascendancy back from Apple Inc. Photographer: SeongJoon Cho/Bloomberg©Bloomberg

Samsung Electronics has presented an optimistic outlook for the second quarter after reporting solid first-quarter profit thanks to robust smartphone sales.

Samsung’s handset business re-emerged as its biggest earnings driver, with the division’s operating profit in the period jumping 42 per cent from a year earlier to Won3.9tn ($ 3.4bn). That was the highest since the second quarter of 2014 and signals a turnround in the smartphone business after two years of shrinking profits and market share.


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The improved performance in the competitive smartphone market, helped by a strong start for its latest flagship S7 devices, drove the South Korean company’s net profit up 14 per cent to Won5.25tn in the first three months of this year. Sales increased 5.7 per cent to Won49.8tn.

The technology company said on Thursday that it expected operating profit to increase in the second quarter, “led by steady earnings in the mobile and semiconductor businesses”. First-quarter operating profit rose 12 per cent year-on-year to Won6.7tn, slightly better than guidance of Won6.6tn.

Samsung’s optimistic tone contrasted with that of Apple, which this week reported its first quarterly revenue decline in 13 years and painted a gloomy picture for the current quarter because of to falling iPhone sales.

The global smartphone market contracted for the first time in the first quarter, according to figures on Thursday from Strategy Analytics, with shipments falling 3 per cent from the same period a year earlier.

Samsung stole a march on its US rival, taking advantage of a low point in the iPhone product cycle to launch its new Galaxy S7 and S7 Edge smartphones a month early, and at lower prices than their predecessors.

The move helped the company regain market share, with Samsung accounting for 27.8 per cent of the 292m smartphones shipped in the first quarter, almost double Apple’s 14.4 per cent share, according to market researcher TrendForce.

Samsung expects lower handset shipments in the second quarter but higher average selling prices from the first quarter.

The semiconductor division performed less well, with operating profit sliding 10 per cent to Won2.6tn — the first annual decline in four years — sapped by falling memory chip prices amid slowing PC demand. However, analysts said Samsung was faring better than its rivals thanks to its technology leadership and cost-competitiveness.

Samsung’s display business reversed to a Won270bn operating loss, from a Won520bn profit a year earlier, because of lower panel prices and production glitches stemming from its processing technology conversion. But the company said there was strong demand for OLED panels and that it was expanding OLED capacity as it saw an “expanded customer base”.

Samsung has declined to comment on the matter but industry watchers say it is in talks with Apple to be a major supplier of displays for new iPhone models scheduled for release next year.

Some analysts remain sceptical that Samsung can maintain momentum over the rest of this year.

“The company certainly has technological strength and cost-competitiveness but there will be a limit in improving its profitability when the Korean won is getting stronger and the global economy remains slow,” said Lee Seung-woo at IBK Securities. “I also doubt how long the Galaxy S7 would remain hot, given the shorter smartphone product cycle.”

Shares in Samsung were down 2.8 per cent Thursday afternoon in Seoul, where the Kospi Composite was off 0.8 per cent.

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