Why Samsung leads smartphone race against Apple

Published Jul 9, 2017

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Seoul - Samsung Electronics heads into the latter half of

2017 with record quarterly earnings under its belt, hoping to sustain that

momentum as Apple prepares to debut the 10th-anniversary iPhone.

Samsung intends to use its well-received Galaxy S8

to extend its lead against its American rival. But it will also lean

heavily on its position as the world’s largest maker of memory chips to grow

its bottom line. The company’s ability to produce not only mobile devices but

also some of the most vital parts of a phone, including displays, confers a

unique advantage over Apple at a time the global market is losing steam.

The company reported its best-ever operating profit on

Friday. That result, which includes the first full quarter of sales from the

bezel-less S8, underscores how it’s benefiting from higher prices for the

memory chips that go into all computing gadgets. Samsung also happens to be the

world’s largest supplier of organic light-emitting diode displays, which may

soon become standard.

“Samsung’s dominance in components that matter gives it the

upper hand at least through the entire next year,” said Lee Jae-yun, an

analyst at Yuanta Securities Korea. “There is only so much either Apple or

Samsung can do right now to make their Smartphone’s stand out, unless

technology like foldable displays reshapes the market.”

Read also:   Samsung crashes iPhone party in S Korea

Samsung may just end up outstripping Apple in profitability

in the second quarter. Preliminary operating income rose to 14 trillion won

($12 billion) in the three months ended June, beating the 13 trillion-won

average of analysts’ estimates. Its US rival is  projected to post

operating income of $10.5 billion in the same quarter a typically weaker period

ahead of the release of new iPhones.

Revenue rose to 60 trillion won, compared with the 58.4

trillion won projected. Its shares finished Friday little changed, taking this

year’s gain to about 33 percent.

While displays and semiconductors have picked up the

slack since the Note 7’s recall, the company still gets a significant portion

of revenue from Smartphone. It hasn’t divulged Galaxy S8 numbers but reviews

for the device, which features a bezel-less display and voice-enabled digital

assistant, have been favourable.

Samsung is using the S8 to repair its reputation and regain

ground lost to Apple and Chinese rivals from Huawei Technologies to Oppo

following the well-publicized demise of the fire-prone Note 7 last year. 

It reclaimed its position as the world’s biggest Smartphone

maker in the first quarter, after losing the lead due to the recall. It may be

benefiting from the usual pre-iPhone lull. Apple is getting ready to unveil

possibly the year’s most-anticipated electronic gadget around September or

October, an event that typically draws global consumer attention.

Beyond ensuring the S8 holds its own against the forthcoming

iPhone, the company has scrambled behind the scenes to fine-tune its production

machine. It’s keen to demonstrate the smooth working of the corporation in the

absence of de-facto chief Jay Y. Lee, who’s on trial over charges which he

denies he bribed a presidential confidante to secure support for an important

2015 merger. 

The resilience of global memory prices is working in its favour.

DDR3 4-gigabyte dynamic random access memory chips averaged $2.97 in the second

quarter, compared with $1.58 a year earlier, according to data from InSpectrum

Tech Inc.

“Samsung’s been successful with cutting manufacturing costs

for memory chips, and that’s been a big factor, while display sales helped to

boost the earnings,” said Greg Roh, an analyst at HMC Investment Securities.

“Chip prices will

keep rising and another record operating profit is in sight for Samsung in the

third quarter.” Samsung won’t provide net income or break out divisional

performance until it releases final results later this month. It probably

earned 7.5 trillion won in chips, 3.8 trillion won in mobile devices and 1.5

trillion won in displays in the second quarter, according to Lee Seung-woo, an

analyst at Eugene Investment and Securities.

The company is on track to earn about 15.2 trillion won in

the third quarter on the back of Galaxy S8 sales, with annual profit of 54

trillion won this year, Roh said.

Samsung may displace Intel as the world’s biggest chipmaker

by sales this year if it can maintain its current momentum, according to Eugene’s Lee.

And despite its tussle with Apple, it will continue to

reap the benefits of being a major supplier to Cupertino as devices get

smarter, said Chung Chang-won, an analyst at Nomura Holdings.

“Sleeping with the enemy would be the way to define their

relationship going forward,” Chung said. “You can’t do AI without memory and

Samsung has the memory to sell.”

BLOOMBERG 

 

 

 

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