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Smartphones Lift Samsung to Best Profit in Over 2 Years

July 7, 2016, 1:18 PM UTC
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

Tech giant Samsung Electronics said Thursday its second-quarter operating profit likely rose 17.4% from a year earlier, its highest in more than two years as Galaxy S7 smartphone sales propelled mobile earnings.

The world’s top maker of smartphones and memory chips said its April-June profit was likely 8.1 trillion won ($7 billion), better than the average forecast of 7.8 trillion won tipped by a Thomson Reuters survey of 16 analysts. It was the highest since a 8.5 trillion won profit in the first quarter of 2014.

The mobile division likely was the top earner for the second straight quarter, raising the question of whether the South Korean company can sustain this strong momentum in the face of competition from Apple (AAPL) and cheaper Chinese rivals.

“At this point it appears unlikely that we’ll see stronger competing devices emerging (in the second half),” IBK Asset Management fund manager Kim Hyun-soo said.

Apple’s new iPhones—likely to launch around September—would not offer any dramatic new features, Kim said.

While Samsung (SSNLF) will not disclose detailed results until late July, its shares rose on the guidance. They were up 1.7%, compared with a 1.1% rise for the broader market.

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The Thomson Reuters poll tipped the mobile division’s profit to have risen 54.5% from a year earlier to 4.3 trillion won, the highest since the second quarter of 2014.

S7 sales will likely ease in the second half, but Kim said Samsung should be able to maintain quarterly earnings of between 7 trillion won and 8 trillion won for the rest of 2016 with help from its chips business and the launch of its next premium smartphone, the Galaxy Note.

Bouncing Back

Samsung’s smartphone business shrank last year as Apple grabbed market share at the high end with its iPhone 6, and Chinese rivals like Huawei Technologies did well in the budget segment.

Things turned around this year, with the success of the Galaxy S7 and margin improvements from a more streamlined product lineup putting the business on track for its first annual profit growth in three years.

Looking further ahead, some investors remain skeptical about Samsung’s long-term prospects in the cut-throat smartphone segment, which has seen slowing growth globally.

“For the medium term I think 4 trillion won (quarterly mobile) profit is the new normal,” Nomura analyst C.W. Chung said.

Samsung said revenue for the quarter likely rose 3% to 50 trillion won.