Samsung Electronics (KRX:005930) of South Korea has surprised everyone by predicting a 50 percent jump in their operating profits for the fourth quarter in spite of the Note 7 fiasco. The multinational electronics business made a regulatory filing, according to which, the operating profit between October and December 2016 will be 9.2 trillion won or $7.8 billion. In 2015, in the same quarter, it was just 6.14 trillion.
Not just that, if the filed forecast proves to be accurate in the end, then it would be the highest profit figure of Samsung in three years, which is remarkable considering what the business has been going through over the last few months.
The Galaxy Note 7 and Washing Machine Debacle
Consumers started to report last September that Samsung’s Galaxy Note 7 smartphone was catching fire and exploding. They had to call back the offending handsets, but that didn’t stop the inflow of complaints. Airline companies around the world banned the device as it was a security risk. Eventually, Samsung had to recall all the devices, and stop its production, thus causing serious revenue loss. To make matters worse, Samsung’s washing machines began exploding as well.
In fact, they even reported that the Note 7 recall can hit their profits by as much as $2.1 billion. This is why it is so remarkable that in spite of these losses, Samsung was able to report a profit that is the highest in the last three years.
Not surprisingly, this has surprised most analysts. Most forecasts were around 8.2 trillion won, which is 1 trillion won less than what the business filed.
Investors naturally reacted positively to this news. The Samsung (KRX:005930) stock went up by more than 2 percent in Friday’s morning trade. It was still trading at 1.91 percent higher by mid-morning.
How Samsung Could Report Such Impressive Figures
Most of the company’s profits are coming from the components business that provides display panels and memory chips to many businesses, including smartphone makers like Apple (NASDAQ:AAPL). High demand from China and supply shortages means Samsung was able to sell those more, bringing in higher profits. The Korean won’s sharp depreciation, and the prices of memory chips going up also contributed.
The mobile business, by contrast, is still not in good shape. The company has booked a massive operating profit decline of 96 percent over last year. Samsung’s financial health will be much better next year if they can somehow turn around their mobile business.