Samsung expects big profit despite Note7 crisis

Profit is expected to have soared nearly 50 percent in the fourth quarter

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Credit: Martyn Williams

The financial impact of the Note7 recall seems to be largely behind Samsung Electronics, which on Friday forecast that its profit has grown year-on-year by close to 50 percent in the fourth quarter.

A major proportion of the profit of the largest smartphone company is expected to come from components such as memory chips and display panels, rather than from smartphones, according to analysts, a shift that was noticed in the third quarter as well.

"They were fortunate that their memory and displays businesses could offset the doom and gloom resulting from the Note 7 debacle last quarter," said Bryan Ma, vice president for devices research at IDC.

Samsung said in its earnings guidance released Friday that its profit in the fourth quarter is expected to be 9.2 trillion Korean won (US$7.6 billion), up from 6.14 trillion won in the same quarter last year. Revenue for the quarter is expected to be around 53 trillion won, which is about the same as in the fourth quarter of the previous year.

The South Korean company suffered a major hit to its reputation and finances following its announcement of a recall and later the stopping of production in October of the Galaxy Note7 smartphones after its lithium-ion batteries were found to overheat and even explode. Samsung has not provided yet a detailed explanation of what really went wrong with the phones.

"Moving forward, they still need to publicly explain the reason for the battery problems; it's a critical step toward reassuring consumers that their products can be trusted," Ma said.

Following the Note7 debacle, the company revised its revenue and profit forecast for the third quarter. It said in October that revenue for the quarter was likely to be about 47 trillion won, down from the 49 trillion won that it had expected earlier in that month in a preliminary forecast. Operating profit was expected to drop by about 2.6 trillion won to 5.2 trillion won.

While the profit of the company’s mobile business not unexpectedly fell to 0.10 trillion won in the third quarter, its semiconductor profit was 3.37 trillion won, driven by demand for memory chips, particularly high density and high-performance mobile and server products. Its display panel business earned 1.02 trillion won in operating profit for the quarter because of increased earnings on OLED panels and increased shipments of large-sized LCD TV panels.

Rival Apple appears to be far more profitable than Samsung in the smartphone business as it does not play in the low-end segment where fierce competition from Chinese vendors has cut into margins. In the third quarter, Apple cornered 91 percent of total worldwide operating profits of $9.4 billion earned by smartphone companies, according to research firm Strategy Analytics. The other companies figuring in the list were Chinese vendors like Huawei, Vivo and Oppo.

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