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April 11, 2017

Samsung Profit Tops Estimates on S7, Lower Marketing Costs

Samsung Electronics Co. reported second-quarter profit that beat analysts estimates, fueled by stronger sales for Galaxy S7 smartphones and aggressive cost cuts.

Net income, excluding minority interests, was 5.83 trillion won ($5.1 billion) in the period ended June, the Suwon, South Korea-based company said in a filing Thursday. That compares with the 5.64 trillion-won average of estimates compiled by Bloomberg. The company also announced a 1.79 trillion won share buyback.

Samsung was the biggest beneficiary of sluggish sales of Apple Inc.s iPhone 6S models, as U.S. wireless carriers promoted S7 phones, helping to reduce Samsungs own marketing expenses. Price declines of semiconductors and displays also helped sales of the companys other consumer electronics, even amid sluggish economic growth across the globe. The company said it anticipates higher marketing spending in the second half, and an uptick in capital expenditure in plants and equipment.

The smartphone and TV divisions led the earnings surprise for the quarter, said Greg Roh, an analyst at HMC Investment Securities in Seoul. Samsung did well in the first half, but its the matter of how well it could defend itself from the overall downside risks in the second half.

Shares were little changed in early Seoul trading. The stock has gained more than 20 percent this year after three straight annual declines.

Looking ahead to the second half of 2016, the company expects its solid performance to continue compared to the first half, mainly driven by earnings increase in the component business due to sales growth in high value-added products and stable demand and supply conditions, the company said in a statement.

Samsung will unveil its next-generation Note device with larger displays on Aug. 2 in New York, Brazil and in London, the company said.

Revenue was 50.9 trillion won in the quarter, slightly higher than the 50 trillion won of its July 7 preliminary earnings announcement.

Here are key points on how Samsungs divisions performed in the quarter:

  • Sustained profit gains from the companys cheaper smartphones, such as the J series, also helped to boost mobile earnings. Operating profit at the mobile unit rose to 4.32 trillion won from 2.76 trillion won.
  • Operating income at the chip unit was 2.64 trillion won, compared with 3.40 trillion won a year earlier, as weaker demand pressured component prices. 
  • Sluggish sales of personal computers and global smartphones weighed on the prices of memory chips, with a slide in average selling prices of dynamic random access chips. Component prices are rebounding now so that could have a reverse impact on set products, such as phones and TVs and appliances, said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul.
  • The companys main LCD business still faces price declines and intense competition. Operating income from displays was 140 billion won, down from 540 billion won.
  • Focus is also shifting to Samsungs display unit, which is working on flexible displays. Electronics makers are counting on the technology to spawn a new class of products and fuel future growth. Although liquid-crystal display has dominated mobile phone displays for more than 15 years, OLED display technology is set to become the leading smartphone display technology in 2020, IHS Markit wrote in a July 26 report.
  • One beneficiary of falling panel prices was TV sales. Profit at the consumer electronics division, which includes the TV and home appliance businesses, was 1.03 trillion won in the quarter, compared with 210 billion won a year earlier.

Originally published at: http://www.bloomberg.com/