Samsung posts biggest quarterly net profit since 2013 despite Galaxy woes

Samsung 55" Curved Suhd TV
Samsung 55" Curved Suhd TV
Samsung

Seoul - South Korean tech giant Samsung Electronics posted its biggest quarterly net profit for more than three years Thursday after shrugging off the debacle over exploding Galaxy Note 7 batteries.

The results, driven by strong demand for the company's memory chips, represented its second-largest ever quarterly profit.

Shares in the firm - the flagship subsidiary of the sprawling Samsung Group - have climbed in recent months as rising expectations overcame last year's recall embarrassment and its vice-chairperson going on trial for bribery.

But it formally dropped a reform plan Thursday that would have seen it split in two and could have made the group's opaque structure more transparent.

Net profit for the January-March period jumped 46% from a year ago to 7.68 trillion won ($6.7bn), Samsung Electronics said in a statement.

It was its biggest quarterly net profit since the record third quarter of 2013.

Operating profit jumped 48% from a year ago to 9.89 trillion won - also the biggest since the third quarter of 2013.

A breakdown of the figures showed the firm's semiconductor business made its largest-ever operating profit of 6.3 trillion won.

Samsung - the world's largest maker of both mobile phones and memory chips - provides its chips to other companies including archrival Apple.

It was humiliated by the Galaxy Note 7 recall last year, which cost it billions of dollars and dealt a blow to its reputation, but has just launched a new flagship device, the Galaxy S8, to positive reviews and strong orders.

Even so, Samsung warned that smartphone sales may be stagnant in the second quarter due to slowing sales of low-end handsets and "intensifying competition", with Apple set to unveil a new iPhone later this year.

Shares in Samsung Electronics - South Korea's largest firm by value - rose as much as 2.8% to 2.2 million won in morning trade on the Seoul stock market.

But the company has come under pressure on wider fronts.

Vice-chairperson Lee Jae-Yong, the heir to the Samsung group, has been held in custody and is on trial for bribery, with other key executives, in connection with the sprawling corruption scandal that brought down South Korean president Park Geun-Hye.

Investors have also pressed the firm to overhaul its byzantine ownership structure, which enables the founding Lee family to control the vast Samsung empire with complex web of cross-holdings across dozens of group units.

Business risks

Samsung Electronics has considered a proposal by US hedge fund Elliott suggesting it split into a holdings firm and an operating unit, but said Thursday it had dropped the plan, citing regulatory hurdles and potential business risks.

"Samsung concluded the risks and the challenging environment surrounding a change in the corporate structure would not be beneficial for enhancing shareholder value and sustaining long-term business growth," it said in a statement.

In an apparent bid to assuage investors, it said it would cancel 40 trillion won-worth of shares it is holding for itself, which should boost the value of remaining holdings.

Lee Jae-Yong is accused of bribing Park and her secret confidante at the heart of the corruption allegations with millions of dollars in a bid to seek government favours.

He has effectively been at the helm of the group since his father suffered a heart attack in 2014.

His indictment in February sent shock waves through the firm and triggered the announcement of a major reform of its top-down management style.

The scandal shed light on the cosy and corrupt ties between the country's officials and the powerful family-run business groups, called chaebol, that have endured for decades.

In the first quarter, Samsung Electronics' component-making business "enjoyed strong sales thanks to favourable memory chip and display panel prices", the firm.

The company invested a whopping 9.8 trillion won to build and upgrade factories - including 5 trillion won for chipmaking plants - during the period, and vowed to invest "far more than last year" throughout 2017 to maintain growth momentum.

But the firm's mobile business saw sales and profit slow, with operating profits of 2.07 trillion won, down by 47% from a year ago.

It was the smallest profit for the mobile segment in about two years, except in the third quarter of last year at the height of the Galaxy Note 7 problems.

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