Samsung Electronics reports Q1 operating profit of .7 billion

Samsung Electronics delivered earnings surprise for the first quarter, driven by strong earnings of the IM division. The company launched the Galaxy S7 series one month earlier than previous series, successfully forecasting the demand. Given continuously strong sales of the Galaxy S7 in major markets, including the U.S., the company’s earnings are expected to remain strong in the second quarter as well.

Samsung Electronics released its preliminary operating profit of 6.6 trillion Korean won (approx. 5.7 billion U.S. dollars) for the first quarter, a quarterly increase of 7.49 percent from 6.14 trillion won (5.3 billion dollars) and a yearly increase of 10.37 percent from 5.98 trillion won (5.1 billion dollars). The company’s operating profit exceeded last month's market consensus of 5.17 trillion won by more than 1 trillion won.

The earnings surprise is mainly attributable to the IM division’s strong performance. Galaxy S7 sales reached the 10 million unit mark in only 20 days since its launch on March 4, the shortest period in the company’s smartphone sales history.

Samsung Electronics has advanced the launch of its flagship smartphone model by one month since the release of the Galaxy Note 5 in August 2015. This was an emergency strategy in response to sharply increased share of Apple’s iPhone 6 in the premium market. In line with the strategy, the company released the Galaxy S7 one month earlier than previous series. Presales of the Galaxy S7 began on March 4, 15 days after the announcement event on Feb. 21 (local time).

"The previous models, Galaxy S5 and S6, also reached the 10 million mark in the first month after the launch," a high-ranking official of Samsung Electronics said. "The Galaxy S7 is differentiated by a strong sales trend after the first batch, which could determine the success or failure."

The company is likely to see strong Galaxy S7 sales in the second quarter as well, given that large telecom companies such as Verizon in the U.S. are reporting lack of supply.

The experience of failure with the Galaxy S6 also helped improve the Galaxy S7 strategy. Last year, the company faced a supply problem, due to its failure to forecast the Galaxy S6 Edge demand.

Samsung Electronics reportedly faces no problem with the production and supply of the Galaxy S7, thanks to relatively accurate demand forecasting, focusing its marketing efforts on the edge model. In addition, the company could reduce costs and improve the yield, backed by accumulated experiences of metal and flexible display production. The electronics industry estimates that the IM division recorded operating profit of 3 trillion won (2.5 billion dollars) for the first time in two years since the second quarter of 2014. In addition, better-than-expected earnings of the DS division, thanks to favorable foreign exchange rates, also helped improve the company’s total earnings.

김지현기자 jhk85@donga.com