Samsung Electronics logs surprise 80% jump in profit Q3 2015

[Achtung!]

This is VERY surprising and it seems Samsung has made a surprise come-back. Most analysts were expecting ~$4 billion USD in operating profit. But Samsung is now expecting $6.29 billion USD, which, when extrapolated on an annual basis, means that they are making $26 billion USD in annual profits.

Samsung is more profitable than Toyota and Volkswagen, but less profitable than Apple.

It seems like the Galaxy S6, S6 Edge, Note 5 and S6 Edge+ are selling much better than expected. Since Apple is still using TSMC as its main supplier for the A9 CPUs for the new iPhone 6S and 6S Plus, I don't think the release of the new iPhones has much contribution to Samsung's surprise profit boost.

http://www.reuters.com/article/2015/10/06/us-samsung-elec-results-tech-idUSKCN0S033E20151006

Samsung Electronics says third-quarter profit likely up 79.8 percent, beating expectations

South Korean tech giant Samsung Electronics Co Ltd said on Wednesday its July-September operating profit likely leapt 79.8 percent from a year earlier, beating expectations and marking its first quarterly profit growth in eight quarters.

Samsung, in a regulatory filing, estimated its third-quarter profit at 7.3 trillion won ($6.29 billion), compared with 6.7 trillion won tipped by a Thomson Reuters SmartEstimate poll of 30 analysts. The firm reported a 4.1 trillion won profit a year earlier.

Samsung also expects its third-quarter revenue to have risen 7.5 percent from a year earlier to 51 trillion won. The firm will disclose full results in late October.

(Reporting by Se Young Lee; Editing by Stephen Coates)

The recent fall of Apple stocks has a lot to do with slowing momentum of shipments of the new iPhones. Sure, sales are up on a yearly basis, but that's because this time for the first time ever, Apple released the new iPhones in China.

 

[dawheat]

Good for Samsung - their foundary is really carrying them the last year.

- favorable exchange rates as the won fell against the dollar
- significant growth and profit in the chip business - this is absolutely due in large part to Apple. Most analysts expect their chip business to be the single large profit generator - ~3.5 trillion won for the quarter
- Display business with increased sales of AMOLEDs to other OEMs
- Increase in sales but small growth in smartphone profits at ~2 trillion won y/o/y but still far from the heydays several years ago

 

[StrangerGuy]

Yup this has completely to do with the S6 that has shown every sign of tanking so far and totally not to do with massive Apple's A9 chip orders.

 

[lothar]

This is VERY surprising and it seems Samsung has made a surprise come-back. Most analysts were expecting ~$4 billion USD in operating profit. But Samsung is now expecting $6.29 billion USD, which, when extrapolated on an annual basis, means that they are making $26 billion USD in annual profits.

Samsung is more profitable than Toyota and Volkswagen, but less profitable than Apple.

It seems like the Galaxy S6, S6 Edge, Note 5 and S6 Edge+ are selling much better than expected. Since Apple is still using TSMC as its main supplier for the A9 CPUs for the new iPhone 6S and 6S Plus, I don't think the release of the new iPhones has much contribution to Samsung's surprise profit boost.

http://www.reuters.com/article/2015/10/06/us-samsung-elec-results-tech-idUSKCN0S033E20151006



The recent fall of Apple stocks has a lot to do with slowing momentum of shipments of the new iPhones. Sure, sales are up on a yearly basis, but that's because this time for the first time ever, Apple released the new iPhones in China.

What evidence do you have to attribute the profit jump to their phones and not their foundry, display, or flash/storage/RAM business?
How much of this profit increase is attributed to Samsung Electronics specifically?

 

[dawheat]

Yup this has completely to do with the S6 that has shown every sign of tanking so far and totally not to do with massive Apple's A9 chip orders.

Revenue and sales are expected to be up y/o/y in smartphones, though not close to heyday levels. So tanking seems relative when all other top android OEMs had profit regression this year.

 

[Achtung!]

Good for Samsung - their foundary is really carrying them the last year.

- favorable exchange rates as the won fell against the dollar
- significant growth and profit in the chip business - this is absolutely due in large part to Apple. Most analysts expect their chip business to be the single large profit generator - ~3.5 trillion won for the quarter
- Display business with increased sales of AMOLEDs to other OEMs
- Increase in sales but small growth in smartphone profits at ~2 trillion won y/o/y but still far from the heydays several years ago

TSMC took the majority of Apple's A9 chip orders for the iPhone 6S/6S Plus. So I don't know where you got that reasoning from. And SK Hynix is manufacturing the majority of the RAM modules for the iPhone 6S/6S Plus. Toshiba also manufactures some of the NAND storage. The displays of the iPhone 6S/6S Plus are mainly made by LG and Japan Display.

Samsung is a minor player for the components of the iPhone 6S/6S Plus.

The days where Samsung used to be the main supplier of Apple's iPhone processors and RAM are long gone.

Yup this has completely to do with the S6 that has shown every sign of tanking so far and totally not to do with massive Apple's A9 chip orders.

Again, TSMC took the majority of Apple's A9 chip orders. So it seems like your reasoning is incorrect.

What evidence do you have to attribute the profit jump to their phones and not their foundry, display, or flash/storage/RAM business?
How much of this profit increase is attributed to Samsung Electronics specifically?

Well the $6.25 billion USD in profits is for Samsung Electronics only. The entire Samsung Group probably posted more than that.

 

[lothar]

Well the $6.25 billion USD in profits is for Samsung Electronics only. The entire Samsung Group probably posted more than that.

From the article:

The weaker won added about 300 billion won to operating profit, while cost-cutting and improved smartphone inventory management also probably helped, Dongbu Securities analyst Yoo Eui-hyung said.

The won's depreciation helped as well, with the average exchange rate against the dollar falling 12 percent in the third quarter from a year earlier, according to Bank of Korea data.

The world's No.1 maker of smartphones and memory chips guided for a 7.5 percent revenue increase for the third quarter, in line with expectations.

So they earned an extra $258 million due to currency depreciation, which is has nothing to do with them. I'm sure their low profit last year was also negatively affected due to currency appreciation.
Subtract that from $6.25 billion, so that leaves us with $6 billion.

Let's not forget that they moved their Galaxy Note line a month early as well, which will positively impact this quarter because they get to book a lot of the extra gains now and not next quarter.
In other words...Depreciation of the Korean Won, cost cutting, layoffs, moving the Galaxy Note launch a month early, and a few accounting tricks here and there to reduce their inventory is what is probably mostly responsible for this profit...Not an increase in Galaxy sales numbers.

If Samsung was breaking record sales handset numbers, you can bet Samsung PR would be pumping that shit up, no? At least that's what they used to do in the Galaxy S II days. They always made some announcement like "We have sold 5 million Galaxy S phones in xx days", "10 million in xx days", "25 million in xxx days", "50 million in xxx days", etc...

 

[KeithP]

The recent fall of Apple stocks has a lot to do with slowing momentum of shipments of the new iPhones. Sure, sales are up on a yearly basis, but that's because this time for the first time ever, Apple released the new iPhones in China.

So you are saying phones sold in China shouldn't/don't count? Is that a new GAAP rule I hadn't heard about?

-KeithP

 

[StrangerGuy]

So you are saying phones sold in China shouldn't/don't count? Is that a new GAAP rule I hadn't heard about?

-KeithP

There's a new rule that the whole of Samsung Electronics should be compared to Apple's mobile division, didn't you hear about that?

Let's not forget Samsung had the entire Q2 to itself for the S6 yet profits still went down.

 

[stlc8tr]

It seems like the Galaxy S6, S6 Edge, Note 5 and S6 Edge+ are selling much better than expected. Since Apple is still using TSMC as its main supplier for the A9 CPUs for the new iPhone 6S and 6S Plus, I don't think the release of the new iPhones has much contribution to Samsung's surprise profit boost.

LOL. From the very first sentence in the article linked.

Samsung Electronics Co Ltd (005930.KS) on Wednesday said it would post its first quarterly profit gain in two years, beating expectations as strong sales of chips and display probably offset weakness in its smartphone division.

 

[Achtung!]

From the article:

So they earned an extra $258 million due to currency depreciation, which is has nothing to do with them. I'm sure their low profit last year was also negatively affected due to currency appreciation.
Subtract that from $6.25 billion, so that leaves us with $6 billion.

Let's not forget that they moved their Galaxy Note line a month early as well, which will positively impact this quarter because they get to book a lot of the extra gains now and not next quarter.
In other words...Depreciation of the Korean Won, cost cutting, layoffs, moving the Galaxy Note launch a month early, and a few accounting tricks here and there to reduce their inventory is what is probably mostly responsible for this profit...Not an increase in Galaxy sales numbers.

If Samsung was breaking record sales handset numbers, you can bet Samsung PR would be pumping that shit up, no? At least that's what they used to do in the Galaxy S II days. They always made some announcement like "We have sold 5 million Galaxy S phones in xx days", "10 million in xx days", "25 million in xxx days", "50 million in xxx days", etc...

But analysts still predicted an operating profit of only $5.77 billion USD even taking into account all the factors such as depreciation of the won and the shifting of the Galaxy Note lineup earlier than normal.

So you are saying phones sold in China shouldn't/don't count? Is that a new GAAP rule I hadn't heard about?

-KeithP

When did I ever say that?

What I meant was that BECAUSE Apple launched the iPhone 6S and 6S Plus in China at the same time as all other countries this year, this resulted in an unfair comparison compared to last year, when the release of the iPhone 6 and 6 Plus in China was delayed for an entire month. If comparing this year and last year and not including China in the initial sales figures, the sales of the iPhone 6S and 6S Plus posted flat growth.

Have a read of this article and you will understand what I'm saying:
http://qz.com/502041/without-china-apples-iphone-pre-orders-were-probably-a-big-disappointment/

There's a new rule that the whole of Samsung Electronics should be compared to Apple's mobile division, didn't you hear about that?

Let's not forget Samsung had the entire Q2 to itself for the S6 yet profits still went down.

Well what else does Apple make apart from the iPhone, iPad and iPod? Oh yeah, my bad, they also make Macbooks.
In reality, Apple is also an electronics company, just like Samsung. Apple just isn't large enough to be manufacture its own parts.

Comparing Samsung to Apple is illogical. Samsung is a much larger company, the combined value of its revenues, operating profit, net profit, assets and equities is much larger than Apple's. Apple's profits are more impressive, but profits are only one facet of a company's financial health.

And if you're going to argue, "well Apple is more efficient because it can generate more profit without having such a high revenue and assets", then I will ignore it because you have no idea what you're talking about in a business and economics perspective.

LOL. From the very first sentence in the article linked.

The quote from the article doesn't really invalidate my argument. Nowhere does it say that the majority of chip sales were to Apple. In fact, many Chinese smartphone manufacturers are using the Exynos 7420 and other Samsung processors in their phones.

 

[lopri]

I wonder if they are dumping unsold S6's in the gray market? S6 bargains come and go on eBay. I've got mine (64GB) for $400 flat.

 

[Artdeco]

Wow, the spin on this is like watching a 16 year old Russian contortionist on you tube

 

[StrangerGuy]

I wonder if they are dumping unsold S6's in the gray market? S6 bargains come and go on eBay. I've got mine (64GB) for $400 flat.

http://www.gsmarena.com/samsung_profitability_growing_again_stock_surges-news-14357.php

The sub-$200 devices are largely responsible for the sales increase, while Galaxy S6 shipments are dropping "significantly," says an IBK Securities analyst. He calculates the Average Selling Price in September dropped 14%.

Sounds really rosy and sustainable to me.

 

[mnewsham]

http://www.gsmarena.com/samsung_prof...news-14357.php

From that same link though we also get this

There are no hard numbers on the mobile division, but analysts' expectations are for a 24% rise year on year

Obviously we will have to wait for full numbers to come out, but it's still a solid sign that samsung mobile isn't as dead in the water as people were making it out to be.

 

[Achtung!]

It's funny, looking back earlier this year, there were numerous articles predicting the imminent collapse of Samsung because of the profit falls logged in Q3 and Q4 2014. I just chuckled when I read those headlines.

Samsung isn't like Nokia or HTC. They have numerous other businesses which will prevent collapse. For example, Samsung Electro-Mechanics still makes a sizable profit of a quarter of a billion USD per year. There are many Samsung subsidiaries which make relatively good net income. The values of Samsung's assets tower over even those of Apple and Microsoft combined. When you have a company that big, it's too big to fail. And contrary to popular belief, IBM was not too big to fail, and that's why it failed. (back then, people thought IBM was one of those companies that were too big to fail).

Even the people at BGR, most of them the most biased Apple fanboys you will probably come across, agree with me: http://bgr.com/2015/10/07/samsung-q3-2015-earnings-iphone-6s/

The faster Samsung moves away from focusing on mobile phones, the better off it will be in the future. Sales and profit growth will eventually come to a halt (or it already has). Even for Apple, sales and profit growth have slowed considerably by Q3 2015.

The real growth engines will be electric vehicles and EV battery cells. Samsung actually has another division for that called Samsung SDI which is logging record profits as well. Well, actually, their profits are quite small compared to Samsung Electronics, but I wouldn't be surprised if Samsung moves into vehicles in the future. It already makes vehicles in a joint venture with Renault, similar to Renault-Nissan but at a smaller scale. We'll see if Samsung makes a bold move to become the Tesla of Asia.

Apple is also moving towards innovation in EV vehicles, perhaps becoming the rival of Tesla in the future.

 

[lothar]

But analysts still predicted an operating profit of only $5.77 billion USD even taking into account all the factors such as depreciation of the won and the shifting of the Galaxy Note lineup earlier than normal.

What I meant was that BECAUSE Apple launched the iPhone 6S and 6S Plus in China at the same time as all other countries this year, this resulted in an unfair comparison compared to last year, when the release of the iPhone 6 and 6 Plus in China was delayed for an entire month. If comparing this year and last year and not including China in the initial sales figures, the sales of the iPhone 6S and 6S Plus posted flat growth.

Why is it okay to make this comparison for Apple and not for Samsung?
If you're going to avoid the extra month of iPhone sales for Apple, then you should do the same for Samsung's Galaxy Note, Edge+, and any device that they launched in August, which was a month ahead of their normal September schedule.

To reword your statement to a question regarding Samsung:
If comparing this year to last year and not including the early month release schedule of the Galaxy Note, Edge+, and whatever other flagship device that they released in August a month early in the initial sales figures, will Samsung have posted negative or flat growth?

Fact of the matter is this is nothing new.
Most companies do something like this through accounting tricks by advancing launch schedule from the previous year to book immediate gains, inventory management, or releasing products in a drip-drip fashion to show constant sales growth.
Apple has been able to do this well more than most(especially the last part).

 

[Achtung!]

Why is it okay to make this comparison for Apple and not for Samsung?
If you're going to avoid the extra month of iPhone sales for Apple, then you should do the same for Samsung's Galaxy Note, Edge+, and any device that they launched in August, which was a month ahead of their normal September schedule.

To reword your statement to a question regarding Samsung:
If comparing this year to last year and not including the early month release schedule of the Galaxy Note, Edge+, and whatever other flagship device that they released in August a month early in the initial sales figures, will Samsung have posted negative or flat growth?

Fact of the matter is this is nothing new.
Most companies do something like this through accounting tricks by advancing launch schedule from the previous year to book immediate gains, inventory management, or releasing products in a drip-drip fashion to show constant sales growth.
Apple has been able to do this well more than most(especially the last part).

Perhaps, your argument makes sense.

However how much does Samsung's Galaxy Note and Edge+ lineup contribute to its overall profitability?
Especially since its mobile division is now more reliant upon mid-range devices. I'd say Samsung's high sales of its mid-range Galaxy A5, A7 and A8 are contributing more to its profitability than sales of the Galaxy S6, S6 Edge, Note 5 and S6 Edge+.

So, while your argument makes sense, the extent to which a month earlier release of the Galaxy Note and Edge+ lineup contributed to Samsung's surprise earnings is not likely to be as significant as Apple's release of the iPhone 6S and iPhone 6S Plus in China in line with its other worldwide releases (compared to being 1 month late for the China release last year).

 

[lothar]

It's funny, looking back earlier this year, there were numerous articles predicting the imminent collapse of Samsung because of the profit falls logged in Q3 and Q4 2014. I just chuckled when I read those headlines.

Samsung isn't like Nokia or HTC. They have numerous other businesses which will prevent collapse. For example, Samsung Electro-Mechanics still makes a sizable profit of a quarter of a billion USD per year. There are many Samsung subsidiaries which make relatively good net income. The values of Samsung's assets tower over even those of Apple and Microsoft combined. When you have a company that big, it's too big to fail. And contrary to popular belief, IBM was not too big to fail, and that's why it failed. (back then, people thought IBM was one of those companies that were too big to fail).

Even the people at BGR, most of them the most biased Apple fanboys you will probably come across, agree with me: http://bgr.com/2015/10/07/samsung-q3-2015-earnings-iphone-6s/

The faster Samsung moves away from focusing on mobile phones, the better off it will be in the future. Sales and profit growth will eventually come to a halt (or it already has). Even for Apple, sales and profit growth have slowed considerably by Q3 2015.

The real growth engines will be electric vehicles and EV battery cells. Samsung actually has another division for that called Samsung SDI which is logging record profits as well. Well, actually, their profits are quite small compared to Samsung Electronics, but I wouldn't be surprised if Samsung moves into vehicles in the future. It already makes vehicles in a joint venture with Renault, similar to Renault-Nissan but at a smaller scale. We'll see if Samsung makes a bold move to become the Tesla of Asia.

Apple is also moving towards innovation in EV vehicles, perhaps becoming the rival of Tesla in the future.

Link?

Assets don't mean much if they're not earning anything or producing much cash flow.
Go ask the many retail stores that have lots of assets sitting on their store shelf that is not being sold or producing revenue.
There's also a good reason why AT&T, Verizon, and many other telecoms are selling their own towers to other companies and leasing them back from those said companies.
Assets alone cannot prop up a company, so I'm not sure why you'd focus exclusively on that and not other parts such as the cash flow statement.

How does Samsung SDI plan to get into vehicles? By making OLED windshields and mirrors?

 

[lothar]

Perhaps, your argument makes sense.

However how much does Samsung's Galaxy Note and Edge+ lineup contribute to its overall profitability?
Especially since its mobile division is now more reliant upon mid-range devices. I'd say Samsung's high sales of its mid-range Galaxy A5, A7 and A8 are contributing more to its profitability than sales of the Galaxy S6, S6 Edge, Note 5 and S6 Edge+.

So, while your argument makes sense, the extent to which a month earlier release of the Galaxy Note and Edge+ lineup contributed to Samsung's surprise earnings is not likely to be as significant as Apple's release of the iPhone 6S and iPhone 6S Plus in China in line with its other worldwide releases (compared to being 1 month late for the China release last year).

That's a good question to ask.
My answer to that is that in most cases generally, the high end flagship has a higher profit margin than their mid-range devices.
The same is true for the iPhone 6S and 6S+ comparison as well.
The higher you go, the higher your profit margin increases. Now your revenue may not increase as much because you may be selling less devices to people due to high cost, but your profit margin still increases...on paper at least.

 

[lopri]

http://www.gsmarena.com/samsung_profitability_growing_again_stock_surges-news-14357.php

Sounds really rosy and sustainable to me.

But do you really care? I know I don't. I am loving the S6, however.

 

[theeedude]

Probably a currency thing. Korean Won is down.

 

[slackerinabox]

I'm convinced Achtung works for Samsung PR and is trying to manipulate their stock, he spends way too much time on this for a person.

 

[lopri]

Pot, kettle, black?

 

[Commodus]

It boils down to a simple problem of trying to fit facts to a preconceived theory, rather than basing a theory on the facts.

The longstanding beef is that there's two predetermined conclusions at work: that Samsung's phones must always emerge triumphant, and that Apple's phones must always fail. Facts are either exaggerated or conveniently omitted to support these views. Are Samsung's profits recovering in one quarter in spite of its phone sales, not because of them? Don't mention that last part -- surely the inevitable Samsung mobile monopoly is back on track! Did Apple have gangbuster early iPhone sales? Try to pick them apart to claim they don't count.

It's disingenuous, especially when many of us now know the underlying agenda and refuse to simply accept the claims at face value. It's fine to talk about Samsung's earnings... just present the facts plainly, whether they reflect well on your favorite brand or not.