KOREA: Smartphone sales help Samsung report record second-quarter profits

Samsung Electronics has just announced record second-quarter profits: it didn't quite reach market expectations of KRW7tn (almost £4bn), but its KRW47tn (£26.5bn) of sales, and KRW6.7tn (almost £3.8bn) of operating profit in the period from April to Jun this year, means the South Korean giant is making a profit of £56m a day.

Samsung HQ, Samsung Town, Seoul, Korea

Analysts reckon that means the company is doing pretty well in the current global economic climate, but look a bit deeper into the numbers suggest an imbalance in the company – and as seems usual these days, its TV division is one of the underperformers.

Major profits came from the mobile phone and communications division, where models such as the Galaxy Note and just-launched Galaxy S3 are helping to reinforce its position as global market leader. Even in the US Samsung leads Apple in the smartphone market, and worldwide it sells 11 phones per second.

And the average per unit price of the phones it sells is up between five and seven percent on the first quarter of this year, showing its strategy of aiming for premium models is paying off.

The mobile handset division accounted for KRW4.3tn (£2.43bn), or around 65% of the total operating profit for the quarter, and this is predicted to rise to KRW4.8tn, or more than £2.7bn, this quarter as sales of the Galaxy S3 kick in, taking Samsung Electronics' overall profits to a predicted figure somewhere around the KRW8tn (a little over £4.5bn).

By contrast semiconductors, on which Samsung built the scale of its worldwide business, brought in just KRW1.1tn (around £620m) of profit, and its TV, display and white goods business did even less well.

And the poor performance of these sectors means that Samsung's operating margin is just 14.25% of revenue, compared with arch-rival Apple's 39.3%.

Furthermore, it's not just the electronics company that looks increasingly exposed to the vagaries of the mobile phone market: the Samsung Group's other companies, which include construction, heavy engineering, energy and financial services, are currently doing not so well.

In fact, Samsung Electronics accounts for 70% of group profits – or, to put it another way, mobile phones deliver getting on for half of the group's profitability.

To some analysts, that seems like quite a lot of eggs to put in one basket.

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Andrew has written about audio and video products for the past 20+ years, and been a consumer journalist for more than 30 years, starting his career on camera magazines. Andrew has contributed to titles including What Hi-Fi?, GramophoneJazzwise and Hi-Fi CriticHi-Fi News & Record Review and Hi-Fi Choice. I’ve also written for a number of non-specialist and overseas magazines.