High Galaxy S7 Volume And Lower Costs Drive Increase In Samsung’s Profit

Samsung S7

Less competition from new Apple products helped increase volumes during the launch of the Galaxy S7.

A stellar first quarter performance of the Galaxy S7 model as well as smaller marketing expenditures allowed Samsung’s operating income to exceed analysts’ consensus. The Korean giant posted first quarter 2016 earnings at 6.6 trillion won ($5.7 billion) which is considerably higher than the predicted 5.5 trillion won. Consolidated revenue at 49 trillion won also topped expectations of 48.8 trillion.

Samsung released the Galaxy S7 and Galaxy S7 Edge on March, a month earlier compared to the April launch last year for S6, and enjoyed little competition from other manufacturers like Apple and Huawei that had no new models in the same period. The S7 also received good reviews owing to its waterproof features and responsive improvements to complaints against the S6. Shipments exceeded the 7 million units expected and clocked in at an actual 9.5 million.

Marketing costs also contributed to improved income according to Dongbu Securities analyst, Yoo Eui Hyung. “The biggest reason for the sharply improved profitability is largely due to much lower marketing spending for the mobile business.”

However, the general outlook for the company is that this quarter’s report would be the highest for the year.

Even if the S7 is already considered to have a much better performance than the S6, Alpha Asset Management fund manager C.J. Heo reminds that the “S7 sales popped in the beginning but could very well fade as rivals launch new models.”

Some analysts are saying that the early release did not really take away market share from competitors but only accelerated sales from Samsung’s own market, thus, eating at sales that would have been made later this year. As other manufacturers launch their new products, Samsung would also have to up its marketing efforts. HMC’s Greg Roh said that marketing costs for the mobile business will push profits down.

Samsung, which had long been at war with Apple in the technological front, had struggled against Chinese producers like Huawei and Xiaomi who are relentless in undercutting prices. It had countered by releasing mid-tier products like the Galaxy J series in price-driven markets like India.

To aid in its aggressive stance of pursuing the mid to low market, Samsung had been able to lower prices by focusing on production efficiency. It had slimmed down its line-up, concentrating on more marketable models and developing common components that could be used across a wide range of its products.

Aside from the TV and appliances division, which is expected to show increased profit at 385 billion won, other segments of the Samsung conglomerate do not look as good as the mobile business. Estimates of the semiconductor segment show that it had probably declined by 15%. Bloomberg predicts that the display division, in charge of producing light emitting diodes for screens, would show a loss of 160 billion won. The division is also expected to face tough competition from Sharp Corp which had recently been taken over by Foxconn Technology Group, which has strong ties with Apple and Chinese manufacturers.

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