Samsung expects steady Q3 profit despite Note 7 recall

Samsung expects operating profits of 7.8 trillion won ($7 billion), higher than analysts' expectations, despite the fallback from the Galaxy Note 7 recall.
Written by Cho Mu-Hyun, Contributing Writer

Samsung Electronics expects operating profits of 7.8 trillion won and revenues of 49 trillion won for the third quarter of 2016, the company has said in its preliminary guidance.

Operating profits are a jump of 5.55 percent compared to a year ago, but 4.18 percent lower than the previous quarter, when the company posted 8.12 trillion won, its highest in two years thanks to a revival of its mobile business.

Profits are higher than analysts' consensus in South Korea, who lowered figures following the global recall of the Galaxy Note 7 due to battery explosions.

The Galaxy Note 7, which had been dubbed the best Android ever before its battery problems came to light, was expected to boost profits further until the recall. Analysts expect the setback to have knocked off $1 billion in profits from Samsung's third quarter.

It remains to be seen whether the recall will loom over the South Korean tech giant for the next year, with a new report of a Note 7 battery explosion on a US plane having surfaced this week.

The phone was allegedly an exchanged one with a new battery.

Samsung's stronger-than-expected third quarter likely comes from the strong performances of its semiconductor, display, and consumer electronics division.

Prices of DRAM and NAND flashes steadily fell in the past two years but have started to rise again.

PC DRAM prices are also on the rise again, while the demand for 3D NAND flash and SSD are growing fast due to the overall increased memory capacity of products, especially from China.

"Samsung's core business for the second half is semiconductors, not smartphones," said Lee Seung-woo, analyst at IBK Investment & Securities. "DRAM profit has been in decline last year but there is a very high potential demand from smartphones, datacentres, and PCs for games going forward that will make the business lead in profits."

The consumer electronics division, which makes TV and home appliances, is also expected to post high operating profits thanks to the Rio Olympic Games.

The precise contribution of each business will be shown on Samsung's official third quarter announcement at the end of the month.

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