Galaxy S7 provides Samsung Electronics with an unexpected boost

Posted on : 2016-04-08 17:21 KST Modified on : 2019-10-19 20:29 KST
In the first quarter of 2016, provisional operating profits were higher than expected, apparently driven by IT and mobile areas
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Could the Galaxy S7 be taking the mound as Samsung Electronics’s relief pitcher?

With the company generating higher than expected operating profits in the first quarter, the next question is whether it can keep improving its performance with the new smartphone model. But there are other lurking variables, include slated product launches for Samsung’s competitors and fluctuations in the exchange rate.

Samsung Electronics announced provisional data on Apr. 7 for the first quarter of 2016, including 49 trillion won (US$42.2 billion) in sales and 6.6 trillion won (US$5.7 billion) in operating profits between January and March.

Samsung Electronics sales and operating profits
Samsung Electronics sales and operating profits

The sales figures were up 4% from the 47.12 trillion won (US$40.6 billion) listed for the same months in 2015 on the Financial Supervisory System’s electronic information system, but down 8.1% from the 53.32 trillion won (US$45.9 billion) recorded for the fourth quarter of last year.

In contrast, operating profits increased by 457.2 billion won (US$393.7 million), or 10.4%, in 1Q16 after three quarters of steady growth last year gave way to a fourth-quarter decline to 6.1428 trillion won (US$5.3 billion).

Samsung Electronics is scheduled to announce its final performance numbers toward the end of April.

Most business analysts called the earning numbers a surprise, with the first quarter totals coming out far higher than the financial information company FnGuide’s average of 5.6 trillion won (US$4.8 billion) based on predictions by 24 domestic securities companies.

Samsung’s strong fight in the IT and mobile areas and smartphone production appear to be the biggest factors in the unexpectedly high numbers. While the company did not reveal data for its different areas, the IT and mobile areas are believed to account for around 3.5 trillion won (US$3 billion), or more than half the projected total.

“The decisive factors was the Galaxy S7, which came onto the market quicker than previous models, and sales for the semiconductor area were also fairly strong,” said Roh Geun-chang, head of the HMC Investment Securities research center.

“The rest of it appears to be a reflection of Samsung’s past company-wide cost-cutting,” Roh added. Last year, Samsung Electronics cut 2,484 of its 96,898 total positions.

Other analysts suggested the weak value of the won since early this year contributed to the operating profits. While the Galaxy S‘s launch was named the chief factor in the earning surprise, the product has only been on the market for a little over the month, and early supplies have been confined to mobile communications sales branches and the distribution network. A business structure where smartphone parts like semiconductors and displays and finished products like smartphones and TVs are sold overseas in US dollars also means the company can generate large operating profits when the dollar is more highly valued.

“The first quarter exchange rate situation is unlikely to continue as is, so there’s a chance operating profits in the IM area could begin dropping in the second quarter,” said SK Securities analyst Kim Young-woo.

For this reason, the question moving ahead is whether Samsung Electronics can keep its operating profit performance up in the second quarter. A key question now is how the Galaxy S7 fares in its early launch against LG Electronics’s new G5 smartphone, which was released on Mar. 31.

“The Galaxy S5 sold about 20 million units two years ago when it was considered a success. The question of the Galaxy S7’s success could be answered by around mid-May, when supplies are supposed to hit 20 million units,” said Roh Geun-chang.

By Kim Sung-hwan, staff reporter

Please direct questions or comments to [english@hani.co.kr]

 

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