Dependence on Galaxy S7
The tension is mounting around Samsung Group before the release of the Galaxy S7 in Korea.
The performance of Samsung Electronics, the group's financial cash cow, in the first quarter will vary according to sales figures of the new Galaxy S7 smartphone. When Samsung Electronics’ profits in the first quarter are lower than expected, Samsung Group might accelerate a restructuring not only in Samsung Electronics’ IT & Mobile Communications (IM) division but also other subsidiaries in the group. Accordingly, the success of the Galaxy S7 has emerged as a major concern of both Samsung Electronics and the group.
According to a survey conducted by WISEfn, a financial information provider, on March 10, securities companies have made a pessimistic forecast for the operating profit of Samsung Electronics in the first quarter, and the market’s expectations of the company’s performance in the first quarter have also been lowering as time goes by. As of the day, securities companies anticipated the Korea IT giant’s operating profits in the first quarter would reach 5.24 trillion won (US$4.37 billion).
Considering the fact that they had forecast that Samsung Electronics’ operating profits would stand at 6.71 trillion won (US$5.59 billion) early this year and 5.28 trillion won (US$4.39 billion) a month ago, the figure was down 13.46 percent over the beginning of the year and 12.13 percent from the actual operating profit of 5.98 trillion won (US$4.98 billion) in the first quarter last year. It is practically impossible for the company to maintain the 6.15 trillion won (US$5.12 billion) level of operating profits in the fourth quarter of 2015, and it should be content with posting some 5 trillion won (US$4.16 billion) in operating profits.
When Samsung Electronics fails to maintain the 5 trillion won (US$4.16 billion) level in quarterly operating profits, not only the company but also the whole group will be in trouble. There are already some securities firms that estimate its operating profit in the first quarter will drop down to the 4 trillion won (US$3.33 billion) level. Dongbu Securities Co. has forecast that Samsung’s operating profits would reach 4.7 trillion won (US$3.91 billion), while Yuanta Securities Co. expects to see the figure of 4.85 trillion won (US$4.04 billion). However, most securities companies think that the company will be able to post some 5 trillion won (US$4.16 billion) in operating profits due to the release of the Galaxy S7.
Currently, Samsung SDI is propelling the management efficiency, including workforce reduction plans just like voluntary early retirement programs, and the entire group is already ready to carry out restructuring year-round. When the Galaxy S7 fails to put up a good show, it is likely to push ahead with restructuring.
In fact, Samsung Electronics will be unlikely to achieve 5 trillion won (US$4.16 billion) of operating profits when the performance of IM division, which accounts for a third of the total operating profits, doesn’t back it up, though its other businesses, such as TVs and home appliances, put up a good show. In addition, the company has seen sluggish sales in component businesses, including semiconductors and display panels, and the decrease in shipments of existing smartphones due to the potential demand caused by the release of the Galaxy S7.
Samsung Electronics’ IM division posted 2.23 trillion won (US$1.86 billion) in operating profits in the fourth quarter last year, accounting for 36 percent of the total operating profits. It means the IM division should achieve at least 2 trillion won (US$1.67 billion) of operating profits in the first quarter.