Samsung Electronics released its quarterly earnings guidance late last week: Profits hit $5.9 billion, up 14.5 per cent from the previous quarter, and 79 per cent from last year.
While these figures will make for excited chatter amongst investors, Samsung Electronics as a whole is being kept afloat by growth in mobile phones. Mobile phones accounted for $3.8 billion, or 65 per cent, of the unit’s profit this quarter while its semiconductors arm — which first pushed Samsung onto the global electronics market — only made approximately $965 million in profit.
While Samsung has not released its earning report, and only its pre-earnings guidance, reportedly the company’s other units — everything from construction, defence, financial services, appliances, and televisions — are battling worldwide economic uncertainty and a weak eurozone.
“Europe is our biggest consumer electronics market and we may have to initiate cost cuts and product price increases should the euro fall further from the current level,” an unnamed Samsung executive told Reuters. ”Our smartphones are flying off the shelves, with some outlets reporting 40-60 percent sales growth, but that’s distorting the overall trading outlook which is more challenging due to the weak global economy and a weak Euro.”
As is the tradition of the Korean Chaebol — or conglomerate — the Samsung Group does not separate business divisions (with the exception of the recently spun off Samsung Display). As such, Samsung’s operating margin stood at 14.25 per cent — dragged down by dozens of unprofitable units — compared to Apple’s 39.3 per cent.
Is the Samsung Group’s corporate structure sustainable? Numbers show that the conglomerate leans heavily on profits from mobile phone sales in the electronics division; Mobile phones account for 45 per cent of the entirety of the Group’s profits. Considering Apple’s particularly vicious patent warfare against its smartphone rivals, and the soon-expected iPhone 5, those responsible for the corporate governance of Samsung should be concerned that the fate of their company lies in the continued success of the Samsung Galaxy line.
Edit: It should have read 965 million, not billion.