Samsung’s Flagship Model Delivers Growth

South Korean electronics giant estimates strong profit growth

Samsung’s Flagship Model Delivers Growth

South Korean electronics giant Samsung estimates strong profit growth amid heightened popularity in one of its flagship smartphone models. The firm predicts Q2 2016 operating profit of between 8 trillion won to 8.2 trillion won, or about $7 billion, on the back of continued sales growth of its Galaxy S7 smartphone. That’s a 17 percent increase compared to the corresponding quarter last year. Samsung also estimates revenue growth of 3 percent, leading to quarterly revenue of 50 trillion won.

Samsung's success somewhat confounds analysts. With the downturn in the global economy, consumers are starting to spend less, especially on expensive items such as Apple’s iPhone and Samsung’s Galaxy S7. Add to that the subdued and even falling corporate profits across the globe, and many analysts expected Samsung to follow the global trend. But the electronics giant was able to post strong gains with the help of its Galaxy S7 phone. The newest model was launched earlier this year in March and garnered the attention of consumers and analysts alike. Analysts at Susquehanna Financial Group believe 78 million Samsung phones were shipped in Q2 2016, 2 million more than previous forecasts with the help of additional Galaxy S7 shipments.

The company sells more than just smartphones, although lately, it has had to rely on hand-held devices for profit growth. The company’s microchip division was not able to break the global trend, and Samsung expects this group to report stagnant profit growth over the quarter. Samsung is not the only electronics company to report lower chip sales. The market is currently oversaturated with chip products as demand has fallen off. Analysts are concern that companies like Intel and Samsung will have to make major transitions in the future as consumers move away from personal computers and chip products, which account for a third of Samsung’s profit.

Last year, investors were mostly negative on their view of the South Korean tech giant. Its rival was enjoying improved sales and popularity, while its success was being questioned. But Samsung’s fortunes quickly shifted at the start of this year. Profit margins at the company’s mobile division rose by 14 percent in Q1 2016, the biggest jump in more than a year. At the same time, Samsung’s fierce rival Apple reported its first fall in quarterly revenue in 13-years. In just over a year, the analysts’ preference for Apple appears to be shifting towards Samsung. Over the past several weeks, profit estimates for the company have continually risen. With this week’s increased forecast, analysts now believe Samsung is posting a rally. So far this year, shares of Samsung have jumped more than 15 percent.

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