Samsung's operating profit rises 15%, a sharp slowdown

Last year, with smartphone sales sagging, Samsung Electronics said it would orchestrate a turnaround using the components that power electronics - things like chips, screens and circuits. Indeed, for much of 2015, Samsung was able to buck weak prices for memory chips in part because of more advanced technology, for which it charges a premium despite lower production costs. But prices for those items flagged recently, sinking hopes of a recovery.

On Friday, the company said that in the fourth quarter, its operating profit increased about 15 percent, far less than the almost 80 per cent during the third quarter. The results showed that the company, based in South Korea, was vulnerable to the global weakness in demand for electronics despite dominating the crucial memory-chip and display markets. Mark Newman, a Sanford C Bernstein analyst, said technological advantages in their microchips had increased earnings to the point where it would be tough for the firm to keep up the pace.

"It's not going to be a disaster for memory or for Samsung. But for Samsung, it makes sense that they're not going to be able to outperform the rest of the market as they had been doing the previous three or four quarters," Newman said, noting, however, that the huge inventories that kept prices down in 2015 have shrunk and are stabilising.

SLOWING PROFIT

• In the fourth quarter, its operating profit increased about 15%
   
• It is far less than the almost 80% during the third quarter
   
• Operating profit would be about $5.1 billion, in the fourth quarter,
   
• It was 5.3 trillion won in the same period a year earlier
   
• The company is also exposed to a global slowdown in the sales of smartphones
   
• In the third quarter, the company ended a slide in profit that had lasted seven consecutive quarters
   
• It has better profit margins than all its rivals except Apple

In its news release, Samsung said that operating profit would be 6.1 trillion won, or about $5.1 billion, in the fourth quarter, compared with 5.3 trillion won in the same period a year earlier. The numbers released Friday are preliminary; Samsung will post its final earnings later this month.

Still, the results led some analysts to worry that Samsung's profit could fall in 2016. That would mean Samsung's recovery would be over almost as soon as it started. In the third quarter, the company ended a slide in profit that had lasted seven consecutive quarters. The company is also exposed to a global slowdown in the sales of smartphones, for which it provides microchips and screens.

In handsets, the sector that led to Samsung's boom and then a slide, much depends on the company's new folding-screen technology. With folding screens, a phone-size screen can be unfurled into a tablet-size one, according to a report from Ricky Seo, an HSBC analyst.

The report says the technology could appear in phones in the second half of 2016 and would be "a massive shift in a smartphone market that has been an increasingly tough battle at both the high and 'commodity' ends."

The company has better profit margins on its products than all its rivals except Apple. But whether Samsung can continue to reap profits from its smartphones depends on the demand for those phones, in particular its most expensive models.

Samsung may be helped by its strong market position in the production of the organic light-emitting diode-screen technology that is likely to be used in the phones. On Friday, Samsung shares rose slightly in early trading. But the stock has fallen more than 5 per cent in the past week because of concerns about earnings. Though many analysts believe that slack smartphone sales and weak component prices could weigh on Samsung's shares, a report from Shinhan Investment said sentiment could lift as soon as next week.

With Samsung showing off several new devices, including products meant to tap into growing demand for automotive electronics, investors may be drawn back to the company's shares in early 2016 following the International CES, a major electronics show in Las Vegas, the firm said.

©2016 The New York Times News Service