Samsung’s profits soared 50 percent on-year in the fourth-quarter, as a diverse business portfolio helped cushion the fallout from a massive product recall of its Galaxy Note 7 handsets and investigations of its senior executives in an on-going corruption scandal.
In a regulatory filing on Tuesday, Samsung Electronics – the flagship of South Korea’s biggest conglomerate – said consolidated operating profit for the October-December 2016 quarter came in at 9.22 trillion Korean won ($7.9 billion), up 50.16 percent from 6.14 trillion won from a year earlier. The earning was in line with expectations, based on guidance provided previously.
The company added fourth-quarter earnings were driven by the components businesses, which make memory chips and display panels. A weaker Korean won against the dollar also had a positive impact on its operating profits.
The outlook is less positive for the January-March 2017 quarter, where Samsung expects a drop in earnings from higher marketing expenses for its mobile division and a drop in sales of TVs due to weak seasonal demand.
Investors had a positive response to the earnings report, with Samsung shares closing up 0.26 percent at 1,908,000, beating the broader Kospi index which finished flat at 2,065.
Samsung also said it planned to buy back 9.3 trillion won worth of shares this year, which is about 3.14 percent of its total market value, adding that the plan aims to reduce the total number of outstanding shares.
The standout performer was the semiconductor business, which supplies memory chips to other companies including Apple, Samsung’s main rival in the smartphone business.
Operating profit in that division climbed 76.78 percent on-year to 4.95 trillion won for the quarter, and overall it accounted for nearly 47 percent of Samsung’s annual profit numbers. The company expects stable demand for memory storage from smartphones and servers in 2017.
Still, some pointed to limits on how long the unit may bolster Samsung’s earnings as continued price rises are eventually expected to curb demand.
“We expect memory prices to peak by the September quarter, so you are looking at a situation where there are two more quarters of sequential increase,” said Mehdi Hosseini, senior vice president for semiconductors at Susquehanna Financial Group, told CNBC’s “Street Signs.”
Samsung’s display business, which makes OLED panels used on a variety of devices, saw quarterly operating profit jump from 300 billion won to about 1.34 trillion won on-year.
The mobile business also showed signs of recovery, with operating profit up 12 percent on-year to 2.5 trillion won, helped by strong sales of the existing flagship models – the Galaxy S7 and S7 edge – and “improved profitability” in the mid-to-low end models, Samsung said.
For the full financial year, overall operating profit climbed 10.7 percent at 29.24 trillion won on-year, after the mobile business took a massive 96 percent hit in the July-September quarter from the discontinuation of the fire-prone Note 7 handsets.
Mobile bets depend on trouble-free S8 launch
With global smartphone growth projected to slow down, Samsung expects new services such as the use of artificial intelligence in handsets to become a differentiating factor. The company said it aims to add features usually available in their premium models into their mid-to-low end handsets to make them more competitive.
But mobile revenue could still take a hit in the near term due to the delayed launch of the flagship Galaxy S8 phone. “The underlying mobile business is still not strong,” Manoj Menon, partner and MD at Frost & Sullivan, told CNBC’s “The Rundown.”
Various reports indicate the much-anticipated S8 will not be launched at this year’s Mobile World Congress, the go-to platform for Samsung’s flagship phone launches. Instead, it is expected to be introduced sometime in March or April, though Samsung has not indicated a definite date.
The S8 launch will be closely watched since it will be the first new product after the Note 7 was discontinued last year due to battery issues that resulted in handsets catching fire. It will be a litmus test for Samsung in their bid to regain customers’ trust, and analysts have said the company cannot afford another product safety slip-up in the next few years.
On Monday, Samsung finally disclosed that battery problems had led to many of its Note 7 handsets catching fire, after several months of investigations. The company previously said it expected an operating loss of more than $5 billion, spread over three quarters, as a result of the recall and eventual discontinuation of the Note 7.