The past few years have been hard for Samsung as the Korean manufacturer has seen its smartphone sales slump due to increased competition across the board. While there was some good news to be had last year, the controversial removal of key features in flagship Galaxy devices irked some consumers to save their money or else spend elsewhere. 2016, however, has officially started off with a bang.
Following an optimistic earnings guidance earlier this month, Samsung has announced final results for the first quarter of its 2016 fiscal year ending March 31st. The results were, as expected, quite an improvement: Revenue came in at 49.78 trillion won, a sizable increase of 5.7% over the same period last year. Operating profit, on the other hand, jumped an impressive 12% to 6.68 trillion won from Q1 2015.
The figures are actually higher than what Samsung had initially released in its estimated first quarter report which had pegged consolidated revenues at approximately 49.0 trillion won and consolidated operating profit at 6.6 trillion won.
First quarter growth was spurred on by what Samsung describes as “the early launch and successful sales of the flagship Galaxy S7 and S7 edge, improved memory product mix, expanded 14nm supply of System LSI products and increased sales of OLED panels.” Also mentioned with respect to the mobile and internet division, “improved cost efficiency through the streamlining of mid-to-low-end smartphone lineups.”
Interestingly enough Samsung’s press release details a “one-time royalty settlement” that was made, however it had a negligible impact on operating profit affecting less than 1% of the IM (Internet and Mobile) department’s revenue.
Pieces and parts
Focus was put on the display industry’s lackluster performance, something that had already been a sore spot this week. A report from Tuesday indicated the company’s LCD panel sales are being heavily affected by strong competition, something that LG Display is also having to deal with as per a report yesterday. According to Samsung:
Overall earnings of the Display Panel business decreased due to a sharp decline in LCD panel earnings although earnings of OLED panels improved mainly driven by the Galaxy S7. The LCD business experienced temporary yield issues while adopting new process technology as well as TV panel price decline.
Semiconductor-related business operations performed well despite the first quarter typically being a less lucrative period. This was in part spurred by increased demand of Samsung’s 14nm manufacturing prowess.
Also factoring in, the Korean won lost value against major financial instruments in the quarter which had a positive effect on operating profit. A large part of the 0.4 trillion won currency benefit was attributed to component-related earnings.
Despite good gains, Samsung’s stock price is currently down 2.85% as of the time of publishing. This may be as a result of today’s report having a slightly concerning tone with respect to going forward in the year and next. Decreased demand for smartphones and tablets is mentioned and, regardless of how slight it might ultimately be, such is never good for the profit picture.
The Galaxy Note 6 will likely provide a boon to finances in the second half of the year, especially if it – as rumors suggest – is waterproof and sees a return to microSD card support. Along with it, this fall is expected to see the launch of a Samsung Gear 3 smartwatch, a follow-up to what many feel is currently the best device in its product category. Adding to the mix, just yesterday new leaks emerged for a Gear Fit 2.
Still, there is a real sense that this may be the last first quarter that Samsung can post such a respectable increase in revenue and profits. Even should the Galaxy S7 and Galaxy S7 edge continue to sell well throughout the year, there will be an onslaught of competition from around the globe, much of it originating from China where OEMs continue to release comparable hardware for a fraction of the cost Samsung charges. By the time the Galaxy S8 is announced next year, the situation will only be that much more fierce.
The Galaxy S8 stands to be affected by the same problem that has broken Apple’s previously unblemished iPhone track record. As widely reported this week, Cupertino stands to post its first quarterly revenue decline in 13 years, something that LeECO’s CEO is well aware of. This is in no small part a result of decreasing iPhone sales, which, as The Wall Street Journal has reported, means Apple ordering less units.
Samsung has posted a pretty positive profit and performance picture, in part thanks to products like the Galaxy S7 and Galaxy S7 edge. There are many challenges ahead, but for now the company – and its investors – can breath a small collective sigh of relief as the final book in last quarter’s doings can now be closed.
What do you think? Is Samsung doing well? Leave a comment below!