Six months after it warned that 2016 would be a tough year, Samsung Electronics is showing that new technology and new phones are beginning to pay off.
The South Korea-based technology giant said that its operating profit for the three months that ended in June rose 17 percent over the same period a year ago. The jump in growth beat analysts’ expectations and led to the company’s best quarterly profit figure in two years.
At the heart of the recovery is the sustained popularity of Samsung’s flagship S7 phone, which analysts say has sold well despite the competitive pressures from Apple. Bolstering that success are steady sales of the company’s lower-end phones.
Samsung has a significant technology operation in Austin, where it operates one of the biggest chip-manufacturing complexes in North America. Samsung has made at least $15 billion in investments in Central Texas. The company employs about 2,600 people in Austin, where it produces, among other things, advanced low-power processors that are used in mobile devices such as phones and tablets.
If Samsung’s profit growth in the first half of 2016 comes from weathering difficult conditions in the global smartphone markets, analysts say the rest of the year will be more dependent on its lesser-known products: memory components and screen technology.
A potential slump in smartphone sales in the third quarter could be “offset by improving earnings of the semiconductor division and Samsung Display,” according to a report from Shinhan Investment Corp., a Korean securities brokerage.
Samsung said that operating profit would be 8.1 trillion won (about $7 billion) in the second quarter, compared with 6.9 trillion won a year earlier. The numbers released this week were preliminary; Samsung will post its final earnings later this month.
Samsung’s new screen technology — which uses what are called organic light-emitting diodes, or OLEDs — in its own smartphones has given it a production advantage. Samsung uses that technology, which is more efficient and creates thinner and more flexible screens, to give its Galaxy S7 Edge phones curved edges that create the impression that the screen drops off the side of the device.
While Samsung lost ground to Apple in important Asian markets after the U.S. company began offering iPhones with larger screens, the distinctive look of the S7 has helped Samsung hold its own this year.
The OLED technology could pay off for Samsung because more and more mobile phones — made by Samsung and others — are expected to use the screen. The screen technology will probably be central for the highly anticipated foldable or bendable Samsung smartphone models that may be released next year.
Morgan Stanley analysts have said they expect Apple to also adopt the technology for its screens in 2017. Other analysts have said Samsung is already in the process of adding more OLED production, converting plants that formerly produced LCD panels.
In the first quarter of 2016, Samsung remained in the lead among the sellers of smartphones with a 25 percent global market share, selling about the same number of units as it did in the same quarter a year earlier, according to the research group IDC. Apple, which sold about 10 million fewer units in the quarter, had a 15 percent market share.
While Samsung has had difficulties competing with lower-cost Chinese phone makers in crucial developing markets, most notably China, the company’s dominance in screens and memory chips means it can probably also profit by selling expensive components to those companies.
Even better for Samsung, China’s smartphone makers face an uphill battle challenging the Korean giant in more mature and profitable markets.
“Outside of China, many of these brands are virtually unknown and the ability of these rapidly growing Chinese vendors to gain entry into mature markets such as the United States and Western Europe will be essential if they have aspirations of catching Apple or Samsung at the top,” the IDC research manager, Anthony Scarsella, said in a report.
Additional material from the New York Times.
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