Samsung Bounces Back to Defy Apple and Shrinking Smartphone Market
Samsung Electronics' (SSNLF) earnings guidance for the second quarter of fiscal 2016 announced today may be a signal that the world's largest smartphone maker is bouncing back to extend its lead from rival Apple (AAPL) - Get Report and defy a contraction in the global smartphone market. A closer look at its sales volume warrants attention in the upcoming earnings announcement.
The South Korean maker of Galaxy smartphones on Thursday announced that it expects to report the highest operating profit in two years, since the first quarter of fiscal 2014. For the second quarter fiscal 2016, Samsung expects to book operating profit of about 8.1 trillion South Korean won ($7 billion), up 17.4% year on year and up 21% from the previous quarter.
"The stronger than expected performance is believed to be mainly due to strong smartphone sales, especially the Galaxy S7," said Liberum Capital analyst Janardan Menon.
But whether the South Korean smartphone maker's growth is backed by sales volume growth or heightened efficiency remains to be seen. In the same quarter, the firm forecasts sales of about Won 50 trillion, which represents increases of just 0.4% from the previous quarter and 3% from the same period a year ago.
Amidst expectations for contraction in the global smartphone market, larger smartphone makers such as Samsung and Apple have faced intensifying competition from smaller rivals which are releasing cheaper devices. In the first quarter of 2016, both Samsung and Apple lost market share to players such as Huawei, Oppo, and Xioami, who each boosted their presence by between 2% to 3%.
Against Apple, however, Samsung extended its lead, limiting its market share decline to 23.2% from 24.1% in the first quarter. In the same period, Apple share dropped to 14.8% from 17.9% . Apple is expected to release its new iPhone 7 later this year.
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Advisory firm Gartner has said "the smartphone market will no longer grow at the levels it has reached over the last seven years," and expects smartphone sales to exhibit annual growth of 7% in 2016, down considerably from an increase of 14.4% in 2015.
Samsung shares advanced 2.04% in the South Korean market. Apple shares closed up 0.57% at $95.53 on Wednesday.