Samsung Just Had a Great Quarter, But Was it the Peak?

Mobile World Congress - Day 1
BARCELONA, SPAIN - FEBRUARY 22: Visitors look at the new Samsung Galaxy S7 on the opening day of the World Mobile Congress at the Fira Gran Via Complex on February 22, 2016 in Barcelona, Spain. The annual Mobile World Congress hosts some of the world's largest communications companies, with many unveiling their latest phones and wearables gadgets. (Photo by David Ramos/Getty Images)
Photograph by David Ramos — Getty Images

Samsung Electronics flagged a 10% jump in quarterly profit on Thursday—a sign of robust early sales for its new Galaxy S7 smartphones although doubts abound whether momentum can be maintained in the face of new rival offerings.

The South Korean tech giant’s estimate for first-quarter operating profit handily beat market forecasts and has boosted hopes that its struggling mobile business will post its first annual profit gain in three years, also benefiting from an improved performance for mid-to-low tier devices and cost-cutting efforts.

Samsung (SSNLF) said January-March operating profit was likely 6.6 trillion won ($5.7 billion), well above the 5.6 trillion won profit tipped by a Thomson Reuters StarMine SmartEstimate derived from a survey of 23 analysts.

The firm will not disclose a full breakdown of its results until late April, and gave no comment on the performance of its business divisions.


More than a dozen brokerages had lifted forecasts for Samsung earnings since late March encouraged by reports of better-than-expected sales of its Galaxy S7 models, which boast an improved camera, waterproofing and microSD storage support. Samsung’s mobile business was probably the top earner for the first time in seven quarters, analysts say.

A decline in the value of the South Korean won is also expected to help lift the firm’s first-quarter bottom line.

But even so, competition from new products such as Apple’s (AAPL) recently launched iPhone SE and Huawei Technologies’s upcoming flagship P9 phone are tempering investor enthusiasm.

“First quarter earnings will be the peak this year,” said HMC Investment analyst Greg Roh, adding that marketing costs for the mobile business will rise in the next quarter, pushing profits lower.

Investor caution stems from last year’s launch of Galaxy S6 phones, which boasted major design changes and features and were widely praised. Initially expected to be Samsung’s best-selling phones ever, sales fizzled following the launch.

“S7 sales popped in the beginning but could very well fade as rivals launch new models,” said Alpha Asset Management fund manager C.J. Heo. “We have learned from the past.”

Other analysts said Samsung’s decision to launch the Galaxy S7 models a month earlier than their predecessors may have simply have brought forward sales that would have been made in later quarters.

Samsung’s shares gave up early gains to be down 1.6% in midday trade, compared with a 0.2% fall for the broader market

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