Samsung Electronics Makes More Operating Profit Than Expected in Second Half of 2016

Samsung Electronics made $6.93 billion (8 trillion KRW) in operating profit in a quarter since 9 quarters ago and this amount is the biggest operating profit since Samsung Electronics was reorganized under Vice-Chairman Lee Jae-yong. It is more encouraging that all business departments had even upward trend instead of a particular department having higher performance than others. Since competitive edge for many departments has increased, there is higher chance that Samsung Electronics will continue to its stable trend of its performance in second half of this year.

Samsung Electronics made an announcement on the 7th that it made $43.3 billion (50 trillion KRW) and $7.02 billion (8.1 trillion KRW) in sales and operating profits respectively from all of its affiliates based on tentative performance in second quarter. Compared to second quarter of last year, its sales and operating profits increased 3.01% and 17.39% respectively.

This is the first time Samsung Electronics' quarterly operating profits surpassed $6.93 billion (8 trillion KRW) since it recorded $7.36 billion (8.49 trillion KRW) in operating profits in first quarter of 2014. Followed by first quarter, Samsung Electronics also made $433 million (500 billion KRW) more than estimated value from stock industries at $6.54 billion (7.55 trillion KRW) in second quarter.

Its surprising performance in second quarter is due to IM (IT and Mobile) sector, DS (Device Solution) sector, and CE (Consumer Electronics) sector.

Popularity of Galaxy S7 and Galaxy S7 Edge and increased sales of low and medium-priced lineups helped IM sector's performance. 3D NAND-Flash and OLED businesses showed positive signs in DS sector, and DS Sector also benefited from increased profitability from improvement in processes. Large household appliances such as air conditioners, refrigerators and others as well as TVs had shown positive performances in global premium markets for CE sector, and CE sector recorded its biggest performance as positive effects from seasonal peak season were added. Stock industries estimate that CE sector will make about $1.04 billion (1.2 trillion KRW) in operating profits and this will surpass CE sector's biggest performance in second quarter of 2009 when it made $1 billion (1.16 trillion KRW).

Stock industries highly praised Samsung Electronics for evenly increasing competitive edge for each department.

"In the past when Samsung Electronics made $6.93 billion (8 trillion KRW), IM sector took 70% of overall operating profits." said Kwon Seong-ryool who is a researcher for Dongbu Securities Co., Ltd. "While Samsung Electronics had shown irregularity between departments in the past, it now shows balance in profits between departments."

Samsung Electronics' performance stands out even more since Samsung Electronics' surprising performance in first half of this year happened in the midst of unclear predictions of global economy. "Due to decreased demands from IT, it will be difficult for us to maintain performance like last year." said Samsung Electronics early this year through a conference call. However Samsung Electronics' performance in first half of this year was much more improved than last year. Its sales and operating profits increased 4.3% and 14.8% compared to last year.

There are some beliefs that a system by Vice-Chairman Lee Jae-yong has finally settled into its place. Vice-Chairman Lee took over Samsung Electronics' management since second quarter of 2014 when Chairman Lee Kun-hee suddenly fell ill. Samsung Electronics’ performance started to decrease as Galaxy S5 did not meet up to its standards and its operating profits fell to $3.47 billion (4 trillion KRW) in third quarter of 2014. Afterwards Vice-Chairman Lee had worked on improving Samsung Electronics' constitution by boldly reorganizing and adjusting businesses and eliminating unnecessary costs by putting out pragmatism. As a result, Samsung Electronics made operating profits in second quarter of this year that is similar to operating profits in its heyday.

Industries predict that Samsung Electronics will also maintain stable trend of performance in third quarter.

"Although Samsung Electronics' set sector will enter slow season in third quarter, businesses for semiconductors and displays will enter their peak seasons." said Kim Kyung-min who is a researcher for Daishin Securities Co., Ltd. "Samsung Electronics will make about $6.76 billion (7.8 trillion KRW) in operating profits in third quarter."

Staff Reporter Kwon, Keonho | [email protected] & Staff Reporter Bae, Okjin | [email protected] & Staff Reporter An, Hocheon | [email protected] & Staff Reporter Han, Juyeop | [email protected]