Samsung mobile profit highest in two years for Q1

Samsung's mobile division has posted 3.89 trillion won ($3.4 billion) in operating profits out of 6.68 trillion won ($5.83 billion) for the first quarter of 2016 thanks to strong sales of the Galaxy S7 and S7 Edge -- its strongest performance in nearly two years.
Written by Cho Mu-Hyun, Contributing Writer

Samsung's mobile business has posted 3.89 trillion won ($3.4 billion) in operating profits for the first quarter of the year -- its highest since the second quarter of 2014 -- backed by strong sales of its Galaxy S7 and S7 Edge smartphones, its earnings report shows.

The world's largest electronics maker by revenue marked 6.68 trillion won ($5.83 billion) in operating profits and 49.78 trillion won ($43.46 billion) in revenue for the first quarter of the year, a rise of 12 percent and 5.7 percent year-on-year, respectively, thanks to a large contribution from its mobile division, which saw profit jump 42 percent.

The firm posted 5.25 trillion won ($4.58 billion) in net profits for Q1, a significant jump from the previous quarter's 3.22 trillion won and 4.63 trillion won a year ago.

The Galaxy S7 and S7 Edge initially received lukewarm reception when it was unveiled in February but brokerages have since upgraded their forecast. Preliminary guidance released by the firm earlier this month showed that the phones were selling well.

Samsung said in a statement the growth was led by the early launch and successful sales of the flagship Galaxy S7 and S7 Edge, improved memory product mix, expanded 14 nanometer supply of System LSI products, and increased sales of OLED panels.

Besides the S7 series, Samsung also said improved cost efficiency through the streamlining of mid-to-low-end smartphones helped the growth. The company has been unifying its budget models to brands such as Galaxy A, E, and J, which have shown stronger performance than even its flagship models in certain markets.

The firm expects softening demand in smartphones and negative growth in tablets but will "reinforce its leadership in the premium smartphone segment on the back of the Galaxy S7 and S7 Edge" while also expanding Samsung Pay to global markets.

The company, without naming Nokia, said it had a one-time royalty settlement in the quarter that amounted to less than 1 percent of the mobile division's revenue. The division marked 27.6 trillion won in revenue for the quarter, which means the Korean firm paid less than $240 million to its Finnish counterpart, less than that reported.

Samsung's semiconductor business contributed a hefty 2.63 trillion won, lower than any quarter last year, but nonetheless very strong despite the market slump and price drop that has hit rival vendors such as SK Hynix.

Samsung said it achieved the solid earnings, despite weak demand due to seasonality, thanks to sales of high value-added products and reducing costs to technology migrations for DRAM and NAND flashes. The company began mass producing 18-nanometer DRAMs -- the first to make them in 10-nanometer class -- and in NAND, is mass producing 258Gb UFS.

Making smaller chips allows Samsung to call higher prices to clients and at the same time save costs by making more per wafer.

In the logic chip side, the company has been making 14 nanometer SoC for budget models and increasing contract production as well.

It will produce 10-nanometer SoC for clients by the end of the year, the company said, a significant challenge for Moore's Law.

In displays, like rival LG Display, Samsung is suffering from price drops in liquid crystal display (LCD), but OLED supply to the Galaxy S7 and S7 Edge allowed solid earnings, the company said. The company is currently leveraging its small- and mid-sized OLED dominance to supply to Apple.

Consumer electronics saw profit go up thanks to sales of premium products such as SUHD TV and Curved TVs in developed markets, and increased home appliances -- such as air conditioners -- will continue the strong growth going forward.

Samsung said for the rest of 2016, end-products such as smartphones and TVs will continue to generate higher earnings, while in the second half, components such as displays and semiconductor prices will be stabilized by offsetting the slump though the launch of premium products.

The company also announced its third share buyback, amounting to 2 trillion won, which will begin this Friday and end in around three months. The company will cancel 1.3 million common shares and 0.32 preferred shares, to complete the planned 11.3 trillion won ($10 billion) total buyback by the fourth quarter.

Samsung announced the shareholder return program last October.

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