Samsung Electronics set for best quarter in over two years on second-quarter smartphone boost

[July 05, 2016]  By Se Young Lee

SEOUL (Reuters) - Tech giant Samsung Electronics Co Ltd is poised to issue guidance for its best quarterly profit in more than two years, propelled by a surge in mobile earnings on the back of robust sales of its flagship Galaxy S7 smartphones.

The South Korean giant will disclose its estimates for second-quarter earnings on Thursday, with analysts predicting a strong mobile division contributed to a 13 percent jump in operating profit from the same period a year earlier.

The average forecast from a Thomson Reuters survey of 16 analysts tips Samsung to report April-June operating profit of 7.8 trillion won ($6.8 billion), the highest since an 8.5 trillion won profit in January-March of 2014.

The mobile division of the world's top maker of smartphones and memory chips was likely its top earner for the second straight quarter with a 4.3 trillion won profit, according to the survey. Samsung surprised many with better-than-expected first-quarter earnings, and issued guidance for a further pickup in April-June.

"Galaxy S7 sales are better than expected in the first half, and the semiconductor business is also outperforming rivals," said KTB Asset Management's Lee Jin-woo. The fund manager estimated the firm's quarterly operating profit would also stay strong in both the third and fourth quarters at between 7 trillion won and 8 trillion won in each.

Samsung's smartphone business had been squeezed before the start of this year between Apple Inc, at the high end of the market, and Chinese rivals like Huawei Technologies [HWT.UL] in the budget segment. But the Galaxy S7 has provided a catalyst for the earnings rebound, likely putting the mobile business on track to record its first annual profit growth in three years.

Some analysts say Samsung shipped around 16 million Galaxy S7s in April-June, with a higher-priced curved-screen version outselling its flat-screen counterpart and boosting margins. Lackluster sales of offerings from rivals such as Apple and LG Electronics also helped reduced marketing expenses, they said.

A model demonstrates a Samsung Electronics' new smartphone Galaxy S7 during its launching ceremony in Seoul, South Korea, March 10, 2016. REUTERS/Kim Hong-Ji/File Photo

"While operating profit margins for the mobile phone business will decline in the third and fourth quarters as the Galaxy S7 effect fades, operating profit will continue to grow on an annual basis," Korea Investment & Securities said in a report.

As its smartphones thrive, Samsung's chip business - last year's key profit driver - probably saw quarterly profit sink to its lowest in nearly two years due to weak demand from makers of other smartphones and personal computers.

But signs of some price recovery for DRAM chips starting last month and Samsung's dominance in the premium solid-state disc drive market with its 3D NAND chip production technology suggest a pickup in coming months, analysts said.

(Reporting by Se Young Lee; Editing by Tony Munroe and Kenneth Maxwell)

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