Samsung Electronics reported first-quarter earnings that surpassed analysts' expectations, defying slowing growth in the global technology sector as its latest flagship S7 smartphone made a strong start.
In preliminary guidance on Thursday, the South Korean company estimated its operating profit for the first three months of the year at Won6.6tn ($5.7bn) — up 10.4 per cent from the same period a year earlier and beating analysts' consensus estimates of Won5.53tn, according to Bloomberg.
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On this topic IN TechnologySamsung said its revenues for the quarter rose from Won47.1tn to Won49tn year-on-year.
The performance was better than most analysts had forecast, and hinted at a possible halt in the two-year decline at Samsung's mobile business as the Galaxy S7 and S7 Edge premium phones, launched last month, grow in popularity.
It comes as a relief for Samsung, the world's largest mobile phone maker by volume, whose profits and market share in the highly competitive mobile business have fallen over the past two years, squeezed between premium maker Apple and lower-cost Chinese rivals such as Huawei and Xiaomi.
"Samsung's new premium phones fared relatively well as there was no major competitor out there amid falling iPhone sales," said Park Kang-ho, analyst at Daishin Securities. "The company will focus more on cost cuts this year than driving sales volume."
Analysts recently had revised up first-quarter forecasts after Samsung's new head of mobile, Koh Dong-jin, last month gave a positive outlook for sales of its new S7 models. He projected the Galaxy S7 smartphone would outsell its predecessor, pointing to stronger-than-expected pre-orders, despite initial reviews that said the new device was not a big improvement over the Galaxy S6.
Jay Yoo, an analyst at Korea Investment & Securities, estimated that Samsung probably shipped 9.5m S7 phones in the first quarter, much higher than the initial forecast of 7m.
Analysts estimated Samsung's operating profit from its mobile business at more than Won3tn as the company cut back on marketing expenses and reduced production costs.
"The majority opinion in the market was that sales would be weak because the S7 is little different from the S6, but [it] actually helped improve earnings," Doh Hyun-woo, an analyst at Mirae Asset, projected in a recent report.
Analysts expect the S7 and S7 Edge to remain popular until Apple rolls out its new iPhone in the second half of the year, but they remained sceptical of the chances of Samsung's mobile division returning to the years of record profits.
"It is hard to expect the mobile business to drive strong growth and profits as it did in the past," said Mr Park.
Samsung's component business — memory chips and flat-panel displays — was again sapped by falling prices amid weaker global demand, but analysts said seasonal factors should give profitability a fillip from the second quarter.
The company may struggle to maintain momentum in the current quarter as positive currency effects disappear. The won fell about 13 per cent from a year earlier to Won1,239 per US dollar in late February but has gained more than 6 per cent since.
Weakness in the South Korean currency against the dollar has been less helpful for Samsung's smartphone division, which tends to have component costs denominated in dollars and sales in local currencies, but it has been a boost for the semiconductor business, which books most of its sales in dollars.
Shares in Samsung fell 1.3 per cent on Thursday in a broader market that was up 0.1 per cent.
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Source: Samsung earnings guidance buoys smartphone hopes
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