Samsung Smartphones Falter in Q2, Will Foldables Help Them Bounce Back in Q3?

Samsung Electronics Announces Q3 Preliminary Results on the 8th
IM Division's Foldable Phones Drive Recovery to Late 3 Trillion KRW Operating Profit

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] The IT & Mobile (IM) division of Samsung Electronics, responsible for the smartphone business, is expected to recover operating profits in the high 3 trillion won range, driven by demand far exceeding expectations for the third-generation foldable smartphones ‘Galaxy Z Fold3’ and ‘Galaxy Z Flip3’ released last August.

According to industry sources on the 7th, Samsung Electronics is scheduled to announce its preliminary third-quarter earnings on the morning of the 8th. Securities firms expect Samsung Electronics to continue its strong performance. According to financial information provider FnGuide, Samsung Electronics’ operating profit for the third quarter of this year is estimated to increase by 28.4% compared to the same period last year, reaching 15.8607 trillion won. Sales are also expected to rise by 10.3% to 73.8577 trillion won.

During the same period, the IM division, responsible for the smartphone business, is expected to record operating profits in the range of 3.5 trillion to 3.9 trillion won. Although this falls short of last year’s same quarter (4.45 trillion won), it is expected to show improved results compared to the previous quarter (3.24 trillion won).

In the second quarter, the mobile market experienced a seasonal slump, compounded by the resurgence of COVID-19, which led to market contraction. Smartphone sales decreased by more than 20% compared to the previous quarter due to reduced demand in countries such as India, and production disruptions at the Vietnam factory caused smartphone shipments to drop from 76 million units in the first quarter to about 60 million units in the second quarter. Additionally, supply shortages of application processors (AP) for some models also had an impact.

In the third quarter, despite a decline in profit margins due to rising component prices and increased marketing expenses, the IM division is expected to improve its performance as the component shortage eased somewhat in the second quarter. Smartphone shipments are estimated to have increased to around 69 million units. According to market research firm Counterpoint Research, Samsung Electronics sold 21.41 million units in August, a 12% increase from July, due to the easing of production disruptions.

In particular, the third-generation foldable phones ‘Galaxy Z Fold3’ and ‘Galaxy Z Flip3’, released last August, are expected to lead the performance improvement by selling more than 3 million units, including over 1 million units sold domestically. According to Samsung Electronics, sales of the Z Flip3 and Z Fold3 exceeded 1 million units as of the 4th. Samsung Electronics stated, “Demand has exceeded market expectations,” adding, “Especially, the Galaxy Z Flip3 accounts for about 70% of sales, leading the popularization of foldable phones.” Previously, Samsung Electronics postponed the pre-order activation period twice for the first time.

The IM division’s performance is expected to continue improving for the time being, as foldable phone sales remain strong and the next-generation flagship smartphone ‘Galaxy S22’ is preparing for release early next year. Lee Kyu-ha, a researcher at NH Investment & Securities, said, “Despite sluggish global smartphone demand and shipments, Samsung Electronics’ foldable phone Galaxy Z series sales remain solid,” adding, “Production is still insufficient, so continuous sales growth is expected in the future.”

This content was produced with the assistance of AI translation services.