Samsung Q2 2016 Earnings Show Best Operating Profit in Over 2 Years

Spurred by strong sales of its Galaxy S7 and S7 Edge smartphones, the company's 2016 operating profit rose 18 percent to $7.19 billion compared with 2015.


Samsung delivered its highest operating profit in two years in the second quarter of 2016, posting a $7.19 billion profit (8.14 trillion Korean Won, KRW), an 18 percent increase from the 6.9 trillion KRW posted a year ago. That's the highest quarterly operating profit posted by the company since it brought in 8.49 trillion KRW in the first quarter of 2014.

The figures were good news for the world's largest smartphone maker, which had been struggling with some tough earnings reports over the last several years as it battled successful global sales challenges from rival smartphone makers including Apple and Chinese upstarts such as Huawei.

Samsung's Q2 revenue reached $45 billion (50.94 trillion KRW), up from the 48.54 trillion KRW posted in the same quarter a year ago, according to the company's latest earnings report, released July 28. Revenue in the mobile division, which includes smartphones, rose to 26.56 trillion KRW from 26.06 trillion KRW a year ago.

That 5 percent revenue increase was "pretty good," Dan Olds, principal analyst with Gabriel Consulting Group, told eWEEK. "Once a company gets as big as Samsung, it's hard to move the needle when it comes to revenue. But what's really outstanding is that they were able to increase operating profit by a whopping 18 percent."

In the company's mobile division, operating profit rose to $3.82 billion (4.32 trillion KRW), which is up 57 percent from the 2.76 trillion KRW brought in a year ago, "led by expanded sales of flagship products such as the Galaxy S7 and S7 Edge," the company said in a statement. "A streamlined mid to low-end smartphone lineup also contributed to improved profitability."

Samsung said it shipped between 75.6 million and 78.3 million smartphones during the quarter, which is about twice as many as the estimated 40.4 million iPhones sold by Apple, according to a July 28 story by the Associated Press.

Samsung's semiconductor business also saw an increase in revenue, to 12 trillion KRW from 11.29 trillion KRW one year ago, but the division's operating profit fell to 2.64 trillion KRW from 3.4 trillion KRW in 2015.

The company said it expects demand for smartphones and tablets to rise in the second half of the year, though market competition also will rise as competitors release new products, including the latest iPhones from Apple, which are expected to debut in September. "Despite this outlook, Samsung will focus on year-over-year earnings increase by strengthening its high-end lineup and maintaining solid profitability of mid to low-end products," the company added.

In addition, Samsung's upcoming Note 7 phablet, which is scheduled to be unveiled Aug. 2, is expected by the company to "help to maintain solid sales of high-end smartphones led by the Galaxy S7 and S7 Edge. Samsung will also focus on expanding smartphone sales including this year's new Galaxy A and J series and the debut of the Galaxy C series exclusively for the China market."

Olds noted that more than half of Samsung's revenue and operating profit came from its IT and mobile communications business, which he said "has quickly grown to be the biggest and most important division" in the company. "This is a double-edged sword for Samsung. It's great that this business is large and highly profitable, but it's a fickle market, with consumers willing to switch phones to get the hottest new feature. Samsung needs to stay on top of their phone game in order to maintain their position in the market."

Charles King, the principal analyst at Pund-IT, said that Samsung "beat its earnings forecasts and posted its best results in two years by executing successfully across its broad portfolio," including smartphones and other mobile devices. "Sales in other divisions, such as phone components, processors and memory, and home appliances, also did well. In essence, Samsung is charting a path to success by leveraging technology innovations across its own products, as well as those of its partners."

Rob Enderle, principal analyst with Enderle Group, told eWEEK that while the company had a good quarter, Samsung did see "weakness in the display panel business, adverse currency impacts and sales weakness in Europe and emerging markets" that it will have to watch carefully. "Decent financials overall with every unit once again operating profitably, which wasn't the case last quarter," he added.

Samsung rolled out its latest Galaxy S7 and S7 Edge smartphones in March. The devices are powered by Qualcomm quad-core 2.15GHz and 1.6GHz processors for U.S. users and include 4GB of LPDDR4 memory, 32GB of built-in storage and microSD expansion slots that support storage cards up to 200GB. Both phones are water-resistant and include Samsung's first "dual-pixel" cameras, which capture rich low-light images. Both the Galaxy S7 and the Galaxy S7 Edge include rear 12-megapixel cameras with F1.7 lenses and smart optical image stabilization as well as 5-megapixel front-facing cameras.

The Galaxy S7 features a 5.1-inch quad-HD Super AMOLED display (2,560 by 1,440) while the Galaxy S7 Edge features a 5.5-inch quad-HD Super AMOLED display (2,560 by 1,440). Both models include always-on displays for the time and other information. The Galaxy S7 has a 3,000mAh battery, while the Galaxy S7 Edge is equipped with a 3,600mAh battery.

Samsung's latest Galaxy handset, the Galaxy S7 Active, a ruggedized version of the S7, was released in June, exclusively through AT&T, according to a recent eWEEK report. The handset follows the ruggedized Galaxy S6 Active that launched in mid-2015, but gains a bevy of improvements taken from the latest Galaxy S7 and S7 Edge phones. The Galaxy S7 Active has a shatter-resistant and water-resistant 5.1-inch Super AMOLED Quad HD touch-screen display and meets IP68 certification to withstand water exposure of up to 5 feet for 30 minutes. Aimed at users who work and use their phones in hostile environmental and physical conditions, the S7 Active also meets MIL-STD-810G specifications for dirt, dust, temperature, shock and salt resistance. The 5.1-inch display is the same size as the one found on the Galaxy S7 handset. The phone is priced at $795.