Smartphones remain key to Samsung, LG earnings

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Thu, August 24, 2017 | 06:16

Smartphones remain key to Samsung, LG earnings

Posted : 2017-01-08 16:02

Updated : 2017-01-08 18:00

Galaxy S8, G6 key profit drivers this year

By Lee Min-hyung

Samsung Electronics' Galaxy S7

LG Electronics' G5

Despite the ongoing slowdown in the global smartphone industry, conflicting earnings forecasts from Samsung Electronics and LG Electronics indicate how crucial handsets remain as their key profit driver.

The smartphone market here and abroad is at a crossroads due to the slowing growth. This is because handset innovations in hardware and software have stagnated in recent years. A burgeoning rivalry with the rise of Chinese makers has added to the gloomy outlook for the growth potential of the global handset industry.

According to data from market research firm Gartner, worldwide smartphone sales are unlikely to grow in double digits in future. The company estimated that global smartphone sales grew only 7 percent last year _ a steep decline from 14.4 percent growth in 2015.

But the earnings estimates of the Seoul-based electronics giants showed that smartphones are expected to be their core profit booster at least for this year.

On Friday, the two companies unveiled their preliminary earnings guidance for the fourth quarter. Samsung particularly surprised the market with an estimated operating profit of 9.2 trillion won ($7.68 billion) in the period, up 49.84 percent from a year ago. Earlier market consensus came in at only 8.3 trillion won, due to the recent Galaxy Note 7 recall.

Market analysts said the firm's third-largest profit estimate history was attributable to its robust sales in DRAM and NAND flash memory chips. But another key driver came from its swift recovery and resilience in the smartphone business following the unprecedented handset fiasco in the third quarter, according to the observers.

They said the company has succeeded in filling the void of the sales and production termination of the premium handset in October by swiftly realigning its product portfolio focusing on the Galaxy S7 and S7 Edge.

"Samsung Electronics' information technology & mobile communications (IM) unit is on a path to earnings recovery due to robust sales of the S7 and its mid- to- low-end handset lineups," said NH Investment & Securities analyst Peter Lee.

"The IM division is estimated to have contributed 2.5 trillion won to the fourth-quarter operating profit. The smartphone unit is expected to recover the earnings fully after the launch of the upcoming Galaxy S8 flagship handset."

Dashing Securities analyst John Park said the IM unit would probably normalize profit from the second quarter of the year when the S8 is likely to go on sale.

As Samsung has yet to unveil the exact reasons for the unconfirmed battery fire of the Note 7, the firm is unlikely to launch the S8 at this year's Mobile World Congress (MWC) next month. The firm has not confirmed the launch date, but local reports said that the S8 would make its debut around this April.

LG posts deficit over handset failure

Unlike Samsung Electronics, home-turf rival LG Electronics has yet to overcome the de facto failure of its flagship smartphone, the G5, which experts say is the key factor for the fourth-quarter deficit.

The company reported a 35.3 billion won operating loss during the October-December period, its first deficit since the fourth quarter in 2010.

The firm did not give a specific breakdown for the divisional earnings estimate, but market insiders estimate the firm's mobile unit reported an operating loss of up to 500 billion won in the fourth quarter, failing to drive up weak sales of the flagship handset, which was launched at the end of last March.

Because of the negative outlook of the mobile unit, the firm's profit this year lies in the possible success of its new flagship device, the G6. The G6 is likely to debut next month at the MWC in Barcelona, with LG Electronics chief technology officer (CTO) Ahn Seung-kwon recently saying the G6 would be launched "in the very near future."

mhlee@ktimes.com