The Korean tech giant seems to be on a road to recovery from huge losses of the last year's Note 7 scandal as it drives its profits 50% higher in Q4. While Samsung is focusing on microchips instead of smartphones, Apple decides to become its new neighbor in Seoul by opening the first-ever retail store in South Korea.
Samsung Electronics (KRX: 005930) announced earlier today that its operating profits for Q4 ending this month amount to 9.2 trillion won ($7.8 billion), which is 50% higher than a year earlier and well above analysts' estimations of 8.3 trillion won, reported Financial Times. If confirmed, this will become Samsung's highest operating profits result since 2013.
Shares jumped at least 1.8% in today's trading on Seoul exchange as investors got encouraged by unexpectedly good Q4 performance pre-announced by the company. Interestingly, Samsung's famous smartphone business was not the main reason behind soaring operating profits since it is still recovering from the scandal around self-inflaming Galaxy Note 7 devices that was projected to hit profits by as much as $2.1 billion. In turn, Samsung's strong Q4 performance comes from the production and sales of memory microchips and OLED displays that become the new promising business direction of the struggling tech giant.
Although, the company did not disclose the exact numbers or profits breakdown by division, the analysts say that over 50% of all profits for this quarter were generated from Samsung's semiconductor business, explained Financial Times. Microchips and OLED displays could be the company's answer to the uncertainty around its struggling smartphone business because demand and market prices for microchips and OLED displays are expected to rapidly grow throughout 2017. Analysts predict Samsung's chip manufacturing business to contribute more than 4 trillion won to its operating profits in the October-December quarter, said Reuters.
Interestingly, Apple (NASDAQ: Apple [AAPL]), Samsung's main rival in the smartphone market, will become one of the main customers of the Korean producer this year. According to Financial Times, Samsung will supply large amounts of its OLED displays and microchips to Apple that supposedly plans to use the displays in its new iPhone 8, released this autumn. At the beginning, Samsung will most likely be Apple's only supplier of OLED displays. In general, prices for OLED panels and microchips skyrocketed in the past months because of the growing demand from smartphone producers that integrate the new technology into their models. And Samsung is the top producer at the moment, well ahead of rivals.
That is why, today's announcement received an immediate approval from investors as the company's semiconductor business is expected to only grow further next year to meet the ever-growing demand. Nevertheless, performance of Samsung's smartphone division was also somewhat stronger than expected, with its older line of Galaxy S7 phones getting back on track after the Note 7 fiasco.
"Samsung posted solid earnings only with sales of older smartphone models like the S7 after the Note 7's discontinuation. This makes me have hopes for the S8. Should they fare well, I expect Samsung to report record earnings this year," Kim Sung-soo, a fund manager at LS Asset Management, {blank} Reuters.
Apple is getting closer than ever
While Samsung has been working on boosting its semiconductor business, Apple seems to make quite real plans of moving into Samsung's neighborhood in Seoul, after years of partnering with third-party local sellers and carriers. Late yesterday, Apple confirmed the rumours of opening a first retail store in South Korea that would be supposedly located in the same neighborhood as Samsung's flagship store.
"We're excited about opening our first Apple Store in Korea, one of the world's economic centers and a leader in telecommunication and technology, with a vibrant K-culture. We're now hiring the team that will offer our customers in Seoul the service, education and entertainment that is loved by Apple customers around the world," Apple said in a statement yesterday, as reported by Reuters.
South Korea still remains one of the toughest markets for Apple, where 80% of all smartphones are produced by Samsung and LG Electronics (KRX: 066570), two biggest Seoul-based tech corporations. Entering this market right at the moment when Samsung's mobile business is not at its best thanks to the Galaxy Note 7 misery last year, could be Apple's chance to eat into the attractive market dominated by strong domestic producers.
Apple posted 15 job openings on its website on Thursday that included a store manager position with location in Seoul, although no starting date or exact location was specified, said Reuters. Open positions for a store that was never publicly announced raised a lot of questions that were followed by Apple's official statement a day later.
Samsung did not provide any comment on Apple's plans.