Samsung confirmed its anticipated strong second quarter, with component sales booming and its mobile unit boosted by Galaxy S8, as it warned of increased marketing costs on the horizon to support the launch of the next Galaxy Note device.
The company said its mobile businesses saw a “significant” increase in earnings quarter-on-quarter following the global rollout of Galaxy S8 and Galaxy S8+, although the year-on-year comparison was less impressive, as the company was impacted by strong component prices.
It said the new devices “have outsold the Galaxy S7 series in almost all regions”, with the bigger device accounting for more than half of total S8 series sales.
Despite the flagship boost, Samsung said smartphone shipments were flat quarter-on-quarter, due to decreased sales of mid- to low-end products.
For its networks business, “solid” revenue and profit were maintained sequentially due to increased LTE investment by “major global partners”. It said it will “focus on next-generation network business such as IoT while continuing to expand LTE-A into major advanced markets”.
Operating profit for the IT & Mobile business for the quarter to 30 June of KRW4.06 trillion ($3.64 billion) compared with KRW4.32 trillion on the prior year, on revenue of KRW30.01 trillion, up from KRW26.56 trillion.
In the coming quarter, it said mobile earnings are expected to decline due to increased marketing costs related to the launch of the new Note device, with reduced profit contributions from Galaxy S8 and S8+. Moving toward the end of the year, demand for smartphones and tablets is expected to increase as the market enters a period of strong seasonality, although competition will intensify as rival products – including the new iPhone – reach the market.
For the mid-range, the company said it will “actively respond to demand from emerging markets and maintain profitability with enhanced products such as the Galaxy J series 2017 editions”.
It also said it is looking to create an “open ecosystem that promotes full connectivity between key services such as Samsung Pay, Samsung Cloud, Bixby and other third-party services”.
Individual business units
For the second quarter, the components business “drove significant earnings growth, both year-on-year and quarter-on-quarter, thanks primarily to strong memory demand for high-density DRAMs and SSDs for servers”. Its display panel business benefited from expanded sales of flexible OLED panels for premium smartphones and high-value LCDs under stable prices”.
The memory business achieved “solid earnings growth”, as the market continued to see supply constraints, which “allowed for favourable supply-demand conditions and prices”.
Operating profit in the Device Solutions unit, which includes semiconductor and display activities, was KRW9.69 trillion, up from KRW2.79 trillion, on revenue of KRW25.25 trillion, up from KRW18.43 trillion.
In the future, the display panel unit is expected to be impacted by initial start-up costs for a new OLED production line, with increased competition from LTPS LCD screens in the mid-low end rigid OLED segment.
The less positive performance came from Samsung’s TV unit, which was hit by slowed demand following sporting events in 2016 that drove sales, and the impact of weakness in China. The Consumer Electronics unit (which includes other appliances), saw an operating profit of KRW0.32 trillion, down from KRW1 trillion, on revenue of KRW10.92 trillion, down from KRW11.04 trillion.
On a higher level, the company said it is “set to develop new growth engines by making strategic investments and securing advanced technologies through M&A”. But it warned that challenges will remain, due to “volatilities in the global business environment”.
On a group level, the company reported a net profit of KRW11.05 trillion, compared with KRW5.85 trillion in the prior year, on sales of KRW61 trillion, up from KRW50.94 trillion.