Sam­sung tips high­erthan-ex­pected profit

De­spite re­call costs

Kuwait Times - - TECHNOLOGY -

SEOUL:

Sam­sung Elec­tron­ics Co. es­ti­mated its profit rose more than ex­pected in the July-Septem­ber quar­ter likely helped by its com­po­nent busi­nesses that helped off­set the cost from an un­prece­dented re­call of its flag­ship smart­phones.

The South Korean com­pany said in an earn­ings pre­view yes­ter­day that its third-quar­ter op­er­at­ing in­come rose 6 per­cent to 7.8 tril­lion won ($7 bil­lion), com­pared with 7.4 tril­lion won a year ear­lier.

That was slightly higher than fore­casts. Ac­cord­ing to fi­nan­cial data provider Fac­tSet, an­a­lysts ex­pected a fig­ure of 7.5 tril­lion won. Sam­sung said sales fell 5 per­cent from a year ear­lier to 49 tril­lion won ($43.9 tril­lion) dur­ing the three-month pe­riod. The com­pany will dis­close its full re­sults in­clud­ing earn­ings and di­vi­sional break­downs later this month.

Clues

The re­sults give clues about the short-term fi­nan­cial im­pact of its first global re­call of smart­phones. Last month Sam­sung re­called 2.5 mil­lion units of the Galaxy Note 7 just two weeks af­ter its de­but as con­sumers re­ported that bat­ter­ies were over­heat­ing and catch­ing fire.

That was fol­lowed by global air­lines ban­ning the phone dur­ing flights and of­fi­cial re­calls by the gov­ern­ments in the US and Canada. An­a­lysts es­ti­mate the cost of the re­call could be as much as $1.8 bil­lion as Sam­sung shipped the phones back and re­placed them with a new Note 7 phone with safe lithium-ion bat­ter­ies.

But they also said the dam­age would be out­weighed by Sam­sung’s other busi­nesses, es­pe­cially its sales of ad­vanced com­puter chips and high­end smart­phone dis­plays.

“We’ll see an earn­ings sur­prise in the dis­play and mem­ory chip busi­nesses,” said Kim Young Woo, an an­a­lyst at SK Se­cu­ri­ties. “The num­bers will show that they are the two growth en­gines for Sam­sung.”

Ac­cord­ing to Kim’s es­ti­mates, nearly half of the in­come was gen­er­ated by Sam­sung’s com­po­nent business dur­ing the last quar­ter, in­clud­ing the chips and the dis­plays. He said the profit from Sam­sung’s mo­bile business plunged to its lowest level in three quar­ters.

Sam­sung is the world’s largest maker of the com­puter mem­ory chips and the world’s dom­i­nant sup­plier of ad­vanced mo­bile-phone screens known as OLED. Sam­sung uses the lu­cra­tive OLED screens for its top-end phones, in­clud­ing the Galaxy S7 and Galaxy S7 Edge phones, whose sales were not af­fected by the Note 7 re­call.

The an­a­lysts also be­lieve that the third quar­ter would be the bot­tom for Sam­sung’s earn­ings. OLED screens for mo­bile de­vices and Sam­sung’s ad­vanced chips for com­put­ers will likely fuel a huge profit growth for the com­pany in com­ing quar­ters, they said.

That means that Sam­sung will have a buf­fer for its bot­tom line even as its smart­phone bat­tery cri­sis continues to dam­age its brand rep­u­ta­tion.

The lat­est blow to Sam­sung’s brand hap­pened ear­lier this week when a US do­mes­tic plane with 75 pas­sen­gers had to be evac­u­ated be­cause of a Sam­sung phone emit­ting smoke be­fore the plane’s take­off. Southwest Air­lines Co. and the Fed­eral Avi­a­tion Agency are in­ves­ti­gat­ing the Wed­nes­day in­ci­dent but de­clined to con­firm whether the Sam­sung phone was the re­placed Note 7 smart­phone that Sam­sung had said was safe to use. —AP

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