[Comprehensive] Galaxy Phones Soar with Operating Profit of 4.39 Trillion Won... Samsung's Surprise Earnings 'Top Contributor'

[Image source=Yonhap News]

[Asia Economy Reporter Seulgina Jo] The Galaxy S21 led the way, and the Galaxy A series pushed forward. Samsung Electronics, which recorded an earnings surprise in the first quarter, secured an operating profit of a whopping 4.39 trillion KRW in the IM division, which is responsible for smartphones and tablets. This accounts for nearly half of the total operating profit (9.38 trillion KRW).

According to Samsung Electronics on the 29th, the IM division's sales in the first quarter reached 29.21 trillion KRW, and operating profit was 4.39 trillion KRW. This represents an increase of 12.3% and 65.7%, respectively, compared to the same period last year, which was directly hit by COVID-19. Compared to the previous quarter, the IM division's sales increased by 30.8%, and operating profit rose by 81.4%.

◆Smartphones Are the Top Contributors to Performance... Early Launch Strategy of S21 Paid Off

Smartphones, including the Galaxy S21, are considered the top contributors driving Samsung Electronics' first-quarter performance.

In particular, the early launch strategy of the Galaxy S21, combined with the COVID-19 pent-up demand and aggressive pricing strategy, is evaluated to have been successful. The Galaxy S21 surpassed 1 million units sold on the 26th of last month, just 57 days after its release. This is about a month faster than its predecessor, the S20. The first weekly sales from January 29 to February 8 increased by approximately 30% compared to the same period for the S20.

Additionally, the two-track strategy with the mid-range Galaxy A series is also analyzed to have contributed to the improved performance. Samsung Electronics held its first-ever online unpack event for the Galaxy A series this year. This reflects the judgment that the mid-range market is important to solidify its position as the global number one in the smartphone market.

The Galaxy ecosystem (Device Eco) products such as tablets, PCs, and wearables, which have enhanced connectivity between devices, also showed growth. Samsung Electronics reaffirmed its plan to expand the DNA of the global number one smartphone to laptops and other devices by holding its first-ever laptop unpack event the previous night.

◆Concerns Over Semiconductor Shortage Impact... Accelerating Profitability Efforts

The mobile market in the second quarter is expected to be sluggish compared to the previous quarter due to the off-season and parts supply issues. While the effect of flagship new products is slowing, the impact of the recent semiconductor shortage is expected to be reflected in the performance in earnest.

Kim Sung-koo, Executive Director of Samsung Electronics' Mobile Business Division, explained during the conference call immediately after the earnings announcement, "There will be an impact due to parts supply shortages caused by the semiconductor shortage," adding, "There is also a marketing burden to secure foldable awareness."

Regarding the outlook for the mobile market in the second half, he mentioned, "There are growth factors such as gradual economic recovery and the spread of 5G, but uncertainties remain due to parts supply issues and the prolonged COVID-19 pandemic." However, it is expected that the annual demand will recover to pre-COVID-19 levels as the economy fully recovers and 5G spreads in the second half.

Accordingly, Samsung Electronics plans to minimize the impact of parts supply and focus on securing profitability. In the wireless division, it will popularize the foldable category such as the Galaxy Z Fold to strengthen leadership in the premium market, while firmly securing market share in the mid-range segment by launching new A series models like the Galaxy A72 and A52.

It will also release tablets and wearable products, including the Galaxy Book series. The network business will continue to expand 5G domestically and grow its business in North America and South Asia.

◆Strengthening Foldable Lineup... Likely to Replace Note at Second Half Unpack

On this day, Samsung Electronics reaffirmed its policy to popularize foldables, which currently lead the market. Foldables and other form factors are becoming increasingly important as the traditional bar-type smartphone market reaches saturation. According to market research firm Counterpoint Research, the global foldable phone market is expected to grow threefold from 5.6 million units this year to 17.2 million units next year.

Executive Director Kim explained, "The Galaxy Z Fold will differentiate itself in the premium market with its large screen and entertainment features, while the Z Flip will meet the demand of millennials and women with its stylish design and improved usability." Although he could not disclose specific lineup launch plans, he added, "We will satisfy product and customer experience by strengthening the foldable ecosystem."

Samsung Electronics has traditionally unveiled new Galaxy Note series models at the second half unpack event, but this year, it is expected that foldable smartphones such as the Galaxy Z Fold and Z Flip will replace that position. There were initial expectations that the 'Lite,' a foldable phone priced around 1 million KRW, and a double-folding phone folding twice would be released within the year, but analyses suggest they will not be included this year.

Executive Director Kim stated, "We will strive to achieve solid profits by popularizing foldables, maximizing sales of competitively priced mid-range 5G new models, and growing the tablet, PC, and wearable businesses. We also plan to continuously strengthen the Galaxy ecosystem through cooperation not only with our own services but also with global partners."