Samsung's Earnings More than Double on Record Chip Profits
By Youkyung Lee. Updated January 24, 2017.
Samsung Electronics said Tuesday that its fourth-quarter profit more than doubled over a year earlier thanks to record-high earnings from its brisk memory chip business and strong smartphone sales, despite costly Galaxy Note 7 recalls.
The South Korean company said it posted 7.1 trillion won ($6.1 billion) in net income during the October-December period, compared with 3.2 trillion won a year earlier.
Analysts surveyed by FactSet, a financial data provider, expected 6.52 trillion won.
Sales stayed flat at 53.3 trillion won ($45.6 billion), the company said in a regulatory filing. Operating profit surged 50 percent over a year earlier to 9.2 trillion won ($7.9 billion), in line with Samsung's guidance earlier this month.
The company, the world's largest maker of smartphones, television sets and memory chips, said its earnings during the current quarter will likely decline because of weaker TV sales and higher marketing expenses for the mobile business.
Samsung's earnings beat the forecasts even as it reels from troubles from a political scandal and the discontinuation of its fire-prone Galaxy Note 7, which has cost it at least $5 billion since the third quarter. On Monday, the company said battery design flaws and manufacturing errors by suppliers made some of the phones overheat or burst into fire.
The biggest force behind Samsung's forecast-beating earnings was its semiconductor businesses, which contributed more than half of the company's quarterly operating profit. Samsung made 5 trillion won ($4.3 billion) in operating profit from its semiconductor division alone, thanks to higher demand for memory chips from mobile device makers and server operators.
Despite the challenge it faces in restoring consumer trust, in the absence of the Galaxy Note 7 smartphones, consumers snapped up Samsung's Galaxy S7 and S7 Edge, released in spring 2016, and other cheaper Galaxy smartphones. That helped Samsung's mobile business rebound from the previous quarter when the Note 7 debacle wiped out its mobile profit. The division generated 2.5 trillion won ($2.1 billion) in operating income during the final three months of 2016.
Demand for mobile devices pushed up demand for Samsung's advanced displays, called OLED, used by growing numbers of smartphone makers. Samsung said its display business generated 1.3 trillion won ($1.1 billion) in operating income.
After disclosing the earnings, Samsung said that it will buy back $8 billion worth of its shares to help raise their value.
In a conference call, Samsung gave a preview of its mobile business plan for the year. It said its next flagship smartphones will feature artificial intelligence services that allow users to talk to the phone to make commands, as users of the iPhone can do with Siri. It also said it will introduce a "differentiated design," possibly hinting at a new, long-awaited foldable phone.
So far, the company's operations appear not to have suffered significant damage from the entanglement of its de facto head and Samsung heir apparent Lee Jae-yong, in an influence peddling scandal that led to the impeachment of South Korea's president, Park Geun-hye.
Asked whether the investigation could have an impact on its business, a Samsung executive said it could pose challenges to the company's strategies that need a long-term planning.
"We have to be mindful of uncertainties in domestic and global political and business environments which could bring challenges in executing our mid- to long-term business strategies," Robert Yi, a senior vice president, told investors.
Last week, a court rejected a request by prosecutors for an arrest warrant for Lee, a Samsung vice chairman, for suspected bribery and other charges.
That was a setback but not the end to the investigation into Samsung's donations to non-profit foundations controlled by Choi Soon-sil, a confidante of Park's who is on trial for meddling in state affairs.