Samsung says profit has risen 80 percent
Electronics giant sees chipmaking focus lift company out of slump.
The preliminary report for July to September suggested the company’s emphasis on making microchips is paying off.
It took longer than many analysts expected, but Samsung Electronics’ long-awaited turnaround has finally shown up in its earnings in a big way. On Wednesday, Samsung said its operating profit increased nearly 80 percent in the most recent quarter.
The preliminary report for July to September suggested the company’s emphasis on making microchips is paying off. The results ended the company’s two-year streak of shrinking profits.
The South Korean electronics maker estimated operating profit at 7.3 trillion won (about $6.3 billion) in the third quarter, well above the 4.1 trillion won posted a year earlier. Sales totaled 51 trillion won, up about 8 percent from 47.4 trillion won from the same period a year earlier. The numbers are preliminary; Samsung will post its final earnings this month.
Samsung has one of the biggest chip-manufacturing complexes in North America in Austin, with at least $15 billion in investments here. The company employs about 2,600 people in Austin, where it produces, among other things, advanced low-power processors that are used in mobile devices such as phones and tablets.
Although the big jump in profit comes in part from the weakness of Samsung’s performance last year and from a weakening South Korean currency, the increased profit is a fresh sign that one of the company’s two major engines of growth, its semiconductor division, is faring well.
In particular, analysts said the company’s chip business probably had been lifted by strong sales of Apple’s
iPhone 6s and Samsung’s own Galaxy Note 5, both of which use microchips made by Samsung.
Samsung’s strength in components — displays for phones and televisions and chips that serve as the brains of smartphones — means that even as it struggles to make money off its lowcost handsets, it can make money supplying the guts of those same devices.
Even so, Nomura analyst C.W. Chung said he expected surging profits from the company’s component business to also start to slow. He also warned not to read too much into earnings surpassing expectations.
“In terms of the surprise versus analyst forecasts, it was foreign exchange. All analysts are quite well aware of what parts of the business are better and worse, but they didn’t catch exactly how big the foreign exchange impact would be,” he said.
On the smartphone business that helped Samsung become one of the largest and most closely watched electronics makers in the world, analysts’ views remained mixed. In recent quarters, margins on the company’s handsets have declined, even as sales of lower-end phones have steadied. Last quarter, the company struggled to keep up with demand for the Samsung S6 Edge, which has a screen that wraps around one side of the phone.
During the past two years, Samsung’s highend models have faced tough competition from Apple, which expanded the screen size of its phones to compete more directly with Samsung’s handsets.
On the low-cost end, which Samsung once dominated, a bevy of Chinese manufacturers like Xiaomi and Huawei have pushed prices down.
According to a summer report focusing on the second quarter from the research group IDC, the competition at the low end is only likely to become more fierce, with ever-growing numbers of new entrants targeting specific markets.