Galaxy S7 sales lift Samsung mobile profit to biggest in two years

The firm had sold an estimated 26 million units of the S7 since it hit stores in March ahead of new launches by competitors, including Apple.

Middle school students use their smartphones in front of a Samsung showroom in Seoul, South Korea. AP Photo

Samsung Electronics flagged its biggest operating profit in more than two years, boosted by cost-cutting and solid sales of its latest flagship smartphone.

The South Korean electronics company – also the world’s top handset maker – predicted an operating profit of 8.1 trillion won (Dh25.8 billion) in the April to June quarter, up 17 per cent from a year ago.

It is the company’s biggest operating profit since the first quarter of 2014 and beat the average analyst estimate of 7.4tn won.

Analysts attributed the figures to the firm’s aggressive cost-cutting and brisk sales of the Galaxy S7, the latest version of its high-end smartphone.

“Samsung’s mobile unit is believed to have performed well thanks to robust sales of Galaxy S7s as well as an overhaul of its low- and mid-end handset line-up,” said Peter Lee, an analyst at NH Investment & Securities.

He estimated that the firm had sold about 26 million units of the S7 since it hit stores in March ahead of new launches by competitors, including Apple.

Samsung has bolstered its mid- to low-end smartphone line-ups to expand in fast-growing emerging markets.

The mobile business accounts for the lion’s share of the company’s overall profit, which has been increasingly squeezed by competition both from Apple’s iPhone and by lower-end devices from Chinese rivals such as Huawei.

Past editions of its flagship smartphones – Galaxy S5 and S6 launched in 2014 and 2015, respectively – had largely met with tepid response, prompting concerns over the firm’s overgrown mobile business.

Samsung shares jumped 2 per cent to close at 1.45 million won in Seoul.

The firm’s aggressive cost-cutting in marketing played a key role in the strong profit forecast, Greg Roh of HMC Investment said, but he warned of more competition from Apple later this year.

“With Apple releasing new products in the latter half of the year ... I think [Samsung’s] earnings may drop in the second-half,” he said.

But the firm’s semiconductor business, which produces memory chips for Samsung gadgets and other clients including Apple, is likely to help offset a slump in the mobile business, Mr Greg said.

The semiconductor unit has buttressed Samsung’s profit margins, with its operating profit largely outpacing the mobile business since late 2014. It racked up operating profit of 12.8tn won last year, beating the 10.1tn won earned by the mobile unit.

The world’s No 2 chipmaker has dominated production of faster, larger-capacity chips using a technology called 3D Nand.

Samsung was the first to mass produce chips using the technology and is producing the high-margin chips – used in mobile gadgets and hard drives for servers – at its factories at home and in China.

“Competitors are trying to increase their 3D Nand production capacity ... but Samsung is expected to lead the market for a while given the technological gap,” said Kwong Sung-ryul, an analyst at Dongbu Investment and Securities.

The forecast, which comes ahead of audited results to be released this month, did not provide a net income figure or breakdown of divisional earnings for the company’s mobile, TV, semiconductor and display units.

It predicted second-quarter sales of 50tn won, up from 48.5tn won a year ago.

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