Samsung Electronics made surprising performance in first quarter of this year. Due to upswing of sales of Galaxy S7, operating profits of IT and IM Sectors have re-entered range of $2.59 billion (3 trillion KRW) in seven quarters. It also made overall operating profit of $5.69 billion (6.6 trillion KRW), which is about $862 million (1 trillion KRW) more than market’s estimated value. If Samsung Electronics wants to continue this upward trend of performance even though forecast of second quarter is not too bright due to continuous poor semiconductor market situation, there has to be steady sales of Galaxy S7 in second quarter.
Samsung Electronics made an announcement on the 7th that based on performance of affiliates and Samsung Electronics, it recorded sales of $42.2 billion (49 trillion KRW) and $5.69 billion (6.6 trillion KRW) of sales and operating profit respectively in first quarter (tentative result).
Its tentative operating profit is actually $862 million more than operating profit consensus (average of estimated values) of $4.82 billion (5.6 trillion KRW) that was estimated by stock industries. It can be seen that effect of early release of its new-application Smartphone Galaxy S7 and influence of exchange rate had triggered positive impact on its operating profit. As it was able to make good performance in first quarter, which is normally a slow season, expectations for better performance in the future have risen even higher.
Although its sales in first quarter decreased by 8.1% compared to previous quarter, its operating profit increased by 7.5% compared to previous quarter. Compared to first quarter of 2015, its sales and operating profit increased by 4% and 10.4% respectively.
Stock industries estimated last month that Samsung Electronics’ operating profit in first quarter will be at about early-end of $4.31 billion (5 trillion KRW) and even their new estimated value later on ended up at $4.82 billion (5.6 trillion KRW).
Turnaround of Samsung Electronics’ performance was led by Galaxy S7. 10 million Galaxy S7s were sold in just 3 weeks. There were about 1.5 times more sales of Galaxy S7 during early sales than sales of Galaxy S6 during its early sales. It is estimated that IT and IM Sectors will make at most about $3.19 billion to $3.27 billion (3.7 trillion KRW to 3.8 trillion KRW) in operating profit.
Because Galaxy S7 is about to be released in foreign countries, industries are interested whether or not sales in foreign countries can lead another positive performance in second quarter.
Fact that semiconductor sector was able to secure competitive edge in production cost and maintain profit by improving its processes is also increasing expectations. It is estimated that Semiconductor Business Department will make about $2.15 billion to $2.24 billion (2.5 trillion KRW to 2.6 trillion KRW) in operating profit. Although it is lower than operating profit of previous quarter, it is the second highest operating profit out of all first quarters.
Effect of exchange rate also had caused increase of sales and operating profit. Exchange rate of won to dollar that was within a range of 1,100 KRW ($0.95) at the end of last year easily surpassed a range of 1,200 KRW ($1.03) in February. It is estimated that exchange rate alone had caused additional profits of hundreds of millions of dollars.
Unlike how CE (Consumer Electronics) Sector made losses in first quarter of last year, it was able to make operating profit of about $345 million to $431 million (400 billion KRW to 500 billion KRW) in first quarter of this year. Although most of departments were able to make positive performance, it is predicted that Display Sector made about $172 million to $258 million (200 billion KRW to 300 billion KRW) in losses due to lack of sales of large LCD Displays and others.
Although Samsung Electronics did fairly well in first quarter, it is taking a careful approach towards second quarter because most of sales of Galaxy S7 was applied in first quarter’s performance and there will be many releases of new products from its competitors such as LG Electronics’ G5 and Apple’s iPhone 6SE. There are also many predictions that believe that price and demands of D-RAM will continue to drop.
“Due to release of new products from its competitors and increase of marketing cost in second quarter, operating profit for IM Sector in second quarter can be lower than operating profit in first quarter.” said Lee Seung-woo who is a researcher for IBK Investment & Securities Co., Ltd.
Staff Reporter Kwon, Kunho | wingh1@etnews.com