Samsung's Q2 quarterly earnings release: net profit of $5.1 billion exceeded expectations

According to Reuters, in the early morning (July 28), Samsung Electronics announced its 2016 Q2 financial report. According to financial report data, in the second quarter ended June 30, Samsung Electronics’ net profit was 5.83 trillion won, a year-on-year increase of 1.65%. The momentum was strong, exceeding market and analysts' average expectations.

After experiencing a three-year slump, Samsung Electronics' stock price has risen 21% this year, outperforming the broader market. South Korea's comprehensive stock index has risen about 3.3% this year.

Market analysts had expected Samsung Electronics’ net profit for the second quarter to be approximately 5.64 trillion won. According to statistics from Bloomberg, Samsung’s revenue for the second quarter was 50.9 trillion won, a year-on-year increase of 4.9%, slightly higher than the 50 trillion won estimated by the company’s initial financial report on July 7, and the net profit was 5.83. Trillion won. In the second quarter, operating profit reached 8.14 trillion won, a year-on-year increase of 18.1%, which is the best level in the past two years.

Samsung Q2 business results all the way red

First of all, as the iPhone becomes more and more disappointing for consumers, sales of Apple's iPhone 6s series have fallen, and Samsung Electronics may become an alternative to the iPhone. In addition, the US operator’s promotion of the Galaxy S7 also helped Samsung Electronics reduce marketing expenses. At the same time, although the global economic growth rate has dropped, the prices of semiconductors and display devices have declined, which has also helped Samsung Electronics sell more of its other consumer electronics products.

Claire Kim, a South Korean stockbroker Daishin Securities analyst, pointed out before the financial report that “Samsung’s end products, such as the Galaxy S7 and TVs, supported the company's second-quarter results. At the same time, the accessories business also played a boost role. The company's mobile phone division in the third quarter may have reduced profits, but Samsung Electronics will launch the next generation of Note devices earlier than last year in an effort to respond to market competition."

Second, the decline in LCD prices has benefited Samsung’s TV business. The report shows that in the consumer electronics sector, including televisions and home appliances, the operating profit for the second quarter reached 1.03 trillion won, higher than the 210 billion won in the same period of last year. As of the end of the second quarter, Samsung’s global sales of TVs accounted for more than 25% of the total, and this proportion is expected to continue to climb.

There are good and bad

However, due to weak demand to suppress the impact of parts prices, Samsung Electronics' chip operating profit fell to 2.64 trillion won in the second quarter, down from 3.40 trillion won in the same period of last year. The sluggish global sales of PCs and smart phones suppressed the price of memory chips in the second quarter, and the average selling price of DRAM memory chips declined. Lee Seung Woo, an analyst at IBK Securities in Seoul, said, “The current rebound in parts prices may have a reverse impact on mobile phones, televisions, and home appliances.”

At the same time, Samsung's LCD panel business still faces the impact of falling average selling prices and fierce competition. The operating profit of the division in the second quarter was 140 billion won, down from 540 billion won in the same period of last year.

The financial report also pointed out that the attention of the LCD panel division of Samsung Electronics has shifted to the present - and began to manufacture flexible display screens. Electronic product manufacturers are counting on this technology to create new products that will ignite future growth. Market research company IHS Markit said in a July 26 report that “Although LCD screens have dominated mobile phone screens for more than 15 years, OLED display technology will become the mainstream smartphone display technology by 2020.”

Finally, analyst Claire Kim said, “Samsung’s smart phone and TV business performed quite well in the second quarter. I don’t think this phenomenon will be a flash in the pan.”