Samsung Notches Highest Net in Years -- WSJ

By Timothy W. Martin and Eun-Young Jeong Features Dow Jones Newswires

Samsung Electronics Co.'s flourishing components business helped the South Korean technology giant notch up its highest quarterly profit in more than three years, as the company said that it would not adopt a holding company structure after a monthslong internal review.

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Samsung, the world's largest smartphone maker by revenue, said that net profit rose sharply to 7.68 trillion South Korean won ($6.8 billion) in the first three months of 2017, a 46% increase from 5.25 trillion won for the same period a year earlier.

Revenue edged up slightly to 50.55 trillion won for the first quarter. Operating profit rose to 9.90 trillion won, up 48% from 6.68 trillion won a year earlier.

In a separate statement on Thursday, Samsung Electronics said that it wouldn't adopt a holding-company structure. Investors and South Korean lawmakers have criticized the company's structure for allowing the controlling family to exert outsized influence over South Korea's largest conglomerate, despite a relatively modest shareholding.

Samsung said that restructuring the company would hurt its competitiveness. Any shake-up of the organizational structure could affect its empire of 60 affiliates operating in consumer electronics, biologic drugs and theme parks.

"The company believes a holding company does not have clear benefits compared to the advantages of the company's current business structure," Samsung said in its statement, which came alongside its quarterly earnings report, the second-highest quarter of operating profit in its history.

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Unrelenting demand for Samsung's semiconductors and flexible display panels -- notably, from smartphone rivals like Apple Inc. -- have lifted the company's bottom line, offering the South Korean conglomerate a cushion against the brand damage inflicted during last year's Galaxy Note 7 fiasco, which was caused by overheating batteries.

Operating profit for Samsung's semiconductor division soared to a record high of 6.31 trillion won in the quarter, more than double that of the period a year earlier, and operating profit margins for the division widened to more than 40% -- another record. Semiconductors accounted for almost two-thirds of the company's overall operating profit.

In contrast, the company's once-dominant mobile division played a relatively small role in the big quarter. Samsung released its new flagship phone, the Galaxy S8, for sale in the U.S. last week -- too late to count for the first quarter.

As a result, the mobile division's operating profit margins were squeezed to 8.8%, from 14% a year earlier. The mobile division accounted for just one-fifth of overall operating earnings, compared to 58% a year ago.

The firm is counting on the Galaxy S8 to help Samsung improve its mobile fortunes after last year's Galaxy Note 7 debacle. Samsung's mobile chief, D.J. Koh, said earlier this month that preorders in the U.S. and South Korea for the Galaxy S8 were higher than for the prior year's model, the Galaxy S7, which remains the company's all-time best-selling device, with around 50 million shipments.

But the Galaxy S8 rollout has already hit some snags. A much-hyped voice-activated "virtual assistant" called Bixby wasn't ready to go when the phone arrived in U.S. stores last week. The English-language version is delayed until as late as the end of May, according to a person familiar with the matter.

South Korean consumers in recent days have also complained about red-tinted screens and patchy Wi-Fi connections. Samsung, which said neither of the issues were product defects, has promised to roll out two software updates this week.

Samsung shares are up about 33% since the first recall of Galaxy Note 7 devices in early September. That investor enthusiasm reflects Samsung's central position as the maker of fundamental components stuffed into gadgets. Samsung shares gained 2% in Thursday morning trading in Seoul.

Thursday's robust earnings come as Samsung weathers a political scandal back home that has put the company's de facto leader, Lee Jae-yong, behind bars as he awaits a court ruling for alleged bribery and other charges.

Separately, Samsung said it would repurchase and cancel 1.15 million common and preferred shares, as part of a 9.3 trillion Korean won share buyback program this year.

Write to Timothy W. Martin at timothy.martin@wsj.com and Eun-Young Jeong at Eun-Young.Jeong@wsj.com

(END) Dow Jones Newswires

April 27, 2017 02:47 ET (06:47 GMT)