Samsung Electronics Co. overtook US-based Apple Inc. in terms of operating margin for the first time. In other worlds, it has become the company that makes money most effectively in the world.
According to industry sources on August 2, Apple posted US$53.27 billion (60.14 trillion won) in sales and US$12.6 billion (14.23 trillion won) in operating profit in the second quarter of this year. Its operating margin, which is equal to operating income divided by revenue, was 23.7 percent.
The figure was exactly the same as the same period last year but was slightly lower than the 26 percent posted at the previous quarter. The second quarter is an off-season for smartphone producers. They are about to release new products for autumn. Therefore, Apple has been showing a relatively poor performance every second quarter.
In comparison, Samsung Electronics made sales of 58.48 trillion won (US$51.8 billion) in the second quarter of 2018 and reported an operating profit of 14.87 trillion won (US$13.17 billion), recording an operating margin of 25.4 percent. The rate of operating profits of its IT and mobile (IM) division, which focuses on smartphones, stood at 11.1 percent but the memory chip division posted an enormous business profit rate at 52.8 percent, raising the company’s overall profitability.
Accordingly, Samsung Electronics beat Apple in terms of operating margin by 1.7 percentage points and succeeded in turning the tables for the first time. Apple got ahead of Samsung Electronics by 0.2 percentage points at the previous quarter.
Samsung Electronics had seen its operating margins fall behind Apple’s by more than 10 percentage points until the second half of 2016 but it decreased the gap to a single digit last year thanks to an improved performance of its semiconductor sector. The company even had the edge over Apple in the first half of this year.
The industry expects that Samsung Electronics will outperform Apple in the third quarter again. Accordingly, the company can surpass Apple in terms of annual performance. An official from the industry said, “It is quite possible if Samsung’s semiconductor division maintains the current trend and its sluggish sales of the smartphone business pick up.” The operating margin of the IM division was 11.9 percent in the third quarter last year.
Apple’s sales and operating profit estimates in the third quarter are US$62 billion (70 trillion won) and US$15.8 billion (17.84 trillion won), respectively, with an operating margin of about 25 percent, according to the industry. Domestic securities firms forecast that Samsung Electronics’ operating margin in the third quarter will be 26 percent with sales of 65 trillion won (US$57.57 billion) and an operating profit of 17 trillion won (US$15.06 billion).
However, some say that it is not reasonable to directly compare Samsung Electronics and Apple because they have differences in terms of business structure. Apple’s main business is smartphone, while about 80 percent of Samsung Electronics’ profits come from the memory chip business.
Samsung Electronics has maintained the number one spot in the global semiconductor industry as it surpassed Intel in terms of market share with 16.1 percent in the first quarter for two years in a row from last year. The industry also expects that Samsung Electronics will take first place for both quarterly and annually for a second successive year.
An official from the industry said, “Samsung Electronics recently showed the rate of returns of over 50 percent in the semiconductor business, bringing about good results, but the “inclination” trend is a considerably unstable factor. The company will be able to have a sustainable growth only when it secures a growth engine in every business sector.”