Samsung's Q3 2015 Financials Show Some Promise

After a string of disappointing revenue and profit reports, Samsung got a bit of a respite in Q3 by posting modest year-over-year increases.

Samsung, smartphones, tablets, revenue, Q3 2015, financials, Apple iPhone, Galaxy S6 Edge+, Galaxy Note 5

Samsung, which had been the victim of a series of disappointing financial reports over the last seven quarters, reported revenue and operating profits for the third quarter of 2015 that are up 8 percent and 37 percent, respectively, from the same period one year ago.

In its Oct. 29 earnings report, Samsung announced Q3 revenue of $45.2 billion (51.68 trillion Korean won) and an operating profit of $6.4 billion (7.39 trillion KRW), which are up from the $41.6 billion (47.45 trillion KRW) in revenue and $3.6 billion (4.06 trillion KRW) in operating profit posted in the third quarter of 2014.

The Q3 revenue was up about 6 percent from the second quarter, when the company posted revenue of $42.5 billion (48.54 trillion KRW).

Yet despite the better numbers, Samsung's mobile unit continues to underperform as operating profit for the unit fell to $2.1 billion (2.40 trillion KRW), a 13 percent drop from the $2.4 billion (2.76 trillion KRW) operating profit posted by the unit in the second quarter. The good news was that the Q3 operating profit was still up 37 percent from the $1.5 billion (1.75 trillion KRW) operating profit that was posted for the third quarter of 2014. The company's IT and mobile products division posted revenue of $23.3 billion (26.61 trillion KRW) in Q3, which was up about 2 percent from the $21.5 billion (24.58 trillion KRW) posted one year prior.

A major bright spot for Samsung's financials continues to be its semiconductor and display panel components division, which brought in about $4.1 billion (4.65 trillion KRW) in operating profit, which is more than half of the company's operating profit for the quarter. The semiconductor and display panels division was also a leader in the second quarter for the company, when it brought in $3.4 billion (3.87 trillion KRW), which was more than half of the $6.0 billion (6.9 trillion KRW) earned in the quarter.

Samsung did not announce how many smartphones it sold in Q2, but the company said that it had "strong shipment growth quarter-over-quarter, led by the launch of new models" such as the Galaxy Note 5 and Galaxy S6 Edge+, but profits decreased slightly due to price drops that were introduced to fuel sales against competing Apple iPhones and other handsets.

"Large screen smartphones released in the quarter are receiving positive feedback from markets and they are expected to exceed in shipments reached by their predecessors," the company announced.

"Looking ahead, global smartphone and tablet sales in the fourth quarter are expected to improve quarter-over-quarter driven by higher market demand toward the end of the year, but competition is expected to get stronger," the company said in a statement. "As for smartphones, the company will focus on maintaining a profit level similar to the previous quarter by expanding product sales for each price segment that were introduced in the third quarter, and by continuously improving efficiency in the expenses."

The bad news for Samsung is that "in 2016, the growth rate for the smartphone market is expected to slow down continuously, compared with previous years," the company said. "However, the company will reinforce its premium products and streamline the line-up to increase sales and to maintain solid business performance."

Several IT analysts reached by eWEEK said Samsung is still not past its recent challenges, but that the improved financial results for the quarter are a definite improvement.

"In today's situation, that is near the top of what Samsung could potentially have achieved in my opinion," Richard Guppy, director of competitor intelligence at Strategy Analytics, told eWEEK in an email reply to an inquiry. Much of the problem for Samsung in mobile phone sales is that its products are in large part undifferentiated from other Android phone producers, but its products sell for higher prices, leaving it at a disadvantage, said Guppy.

"Meanwhile in semiconductors, that is a great result for Samsung," Guppy wrote of the company's revenue and profit figures. "The problem will be that this industry is cyclical, and there will be downturns. When that happens, the smartphone division will be unlikely to pick up the slack, or any other division that Samsung currently has."

What the company needs to do, he said, is to grow its semiconductor business more, such as its smartphone processor business, "to offset future silicon industry cyclical downturns; while of course defending its phone and TV businesses as best it can for an orderly retreat."

Samsung's smartphone business expansion as seen in the past is likely over and business needs to be found elsewhere, wrote Guppy. "Samsung is making the right moves from among those that are open to it in the short term," he wrote. "Trouble is, to find new business in this way requires either deep creativity like you find in America or great agility with low cost like you find in China. Korea seems to be following the path trodden earlier by Japan: stick to what we know and keep doing it better/harder. There is only so much headroom in that strategy."