Samsung reports higher profits off Galaxy smartphone demand

Samsung posted better-than-anticipated profits as continued demand for its Galaxy S7 smartphones helps turn around its mobile devices business.

Operating income rose to 8.1 trillion won ($6.9 billion) in the three months ended June, the world's largest maker of phones and memory chips said in preliminary results released Thursday.

That compares with the 7.38 trillion-won average of analysts' estimates compiled by Bloomberg and 6.9 trillion won a year earlier.

Galaxy S7 models have capitalised on a lull in new iPhones from Apple, helping to boost profit margins at the South Korean company and stoking demand for its components.

That’s helped the biggest maker of devices using the Android operating system defy a slowdown in the smartphone market.

"S7 smartphones turned out to be a greater hit than what the market had thought without competing iPhones," said Lee Seung Woo, an analyst at IBK Securities in Seoul.

“Samsung’s end-user products, such as smartphones and TVs, all performed unbelievably well in the first half and looks like they did a lot of cost reduction.”

Revenue was 50 trillion won in the quarter, the Suwon-based company said, compared with the 50.9 trillion won analysts expected.

Samsung won’t provide net income or break out divisional performance until it releases audited results later this month.

Shares have risen 13 per cent in 2016, putting them on track for their first annual increase in four years.

Samsung probably sold 15 million units of the S7 in the June quarter after selling 10 million in March when it debuted, said Greg Roh, an analyst at HMC Investment Securities in Seoul.

Operating profit at the mobile unit probably rose 53 per cent to 4.23 trillion won in the second quarter, according to the average estimates of six analysts surveyed by Bloomberg News.

Higher sales of the S7 Edge with a wraparound screen, compared with the flat version, along with solid demand for cheaper models helped earnings grow.

In the absence of a new iPhone, many carriers boosted marketing spending to drive purchases of the S7, shifting the cost of promotion away from Samsung.

- Bloomberg