Samsung’s Preliminary Q1 Numbers Likely Driven By Strong S7 Sales, Better Cost Management

Samsung Electronics (OTC:SSNLF) published a relatively strong set of preliminary Q1 2016 earnings, indicating that its operating profit likely grew by about 10% year over year to 6.6 trillion won ($5.7 billion), while revenues likely rose by about 4% to about 49 trillion won ($42.2 billion). ^[1]  While Samsung didn’t provide specific details about what drove the results, it’s likely that the firm benefited from the recent launch of its flagship Galaxy S7 smartphone as well as potentially lower operating expenses for the mobile division. Below, we take a look at some of the factors that potentially drove the company’s results over the last quarter.

We have a $1200 price estimate for Samsung, which is roughly 20% ahead of the current market price.

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Galaxy S7 And Mid-Range Phone Models Likely Drove Sales

Samsung’s flagship Galaxy S7 and S7 Edge devices were launched in early March – roughly a month ahead of the April upgrade cycle that the company typically follows. Both handsets have received very positive reviews from critics and, according to Bloomberg, the company is projected to have shipped roughly 9 million units over the first month. ^[2] This would translate into roughly three times the shipments of the S6 in the same period. Samsung’s mid-range and low-end handsets such as the A series and J series are also likely to have seen growth in emerging markets. For instance, Samsung’s share of the Indian smartphone market rose to 30% in February 2016, from 28.6% in Q4 2015 according to Counterpoint Research.

Better Cost Management In Mobile Unit 

Better cost management is also likely to have played a role in driving Samsung’s smartphone profits. The early launch of the S7, coupled with some weakness at key rival Apple – which has projected its first-ever year-over-year decline in iPhone shipments for Q1 – could have helped Samsung prune down its marketing and promotional costs. Samsung has also been streamlining its product portfolio by focusing its resources on better-selling models.  It has said that it would nix 25-30% of its models in 2015 and this could have helped to keep manufacturing costs in check.

Components Likely Had A Mixed Quarter On Weaker Pricing, Cooling Demand

Samsung’s components businesses are likely to have had a more mixed quarter, on account of falling prices and a weaker shipment outlook for computing devices. Gartner projects that the PC market (including ultra-mobiles) will decline by about 2% this year, while smartphone sales are only projected to grow by about 7%, ending several years of double-digit growth. ^[3] The slowing demand could hamper sales of components including displays, logic chips and memory. Separately, prices for DRAM – which we estimate accounts for about 40% of Samsung’s semiconductor revenues – have softened significantly after about two years of stability, amid stronger supply, potentially hurting Samsung’s revenues.

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1. Samsung Press Release [↩]
2. Samsung Beats Estimates as Early Debut of S7 Boosts Sales, Bloomberg, April 2016 [↩]
3. Gartner Says Global Smartphone Sales to Only Grow 7 Per Cent in 2016, Gartner, March 2016 [↩]