Gap of Operating Profits: Will Samsung Electronics Narrow Gap in Operating Profits with Apple? | BusinessKorea

Tuesday, February 28, 2017

All eyes are on whether Samsung Electronics will be able to narrow the gap in operating margins with its competitor Apple to an all-time low.
All eyes are on whether Samsung Electronics will be able to narrow the gap in operating margins with its competitor Apple to an all-time low.
SEOUL,KOREA
9 January 2017 - 12:45pm
Cho Jin-young

Samsung Electronics posted 17 percent in operating profit rate in the fourth quarter last year, all eyes are on whether the company will be able to narrow the gap in operating margins with its competitor Apple to an all-time low.

According to industry sources on January 8, Samsung Electronics’ sales and operating profits stood at 53 trillion won (US$44.3 billion) and 9.2 trillion won (US$7.7 billion) in the fourth quarter last year, recording 17.36 percent of operating margins. The figure increased 1.16 percent point from 16.2 percent at the second quarter, and it was the highest figure in the last two years.

Samsung and Apple are the leader and the runner up in the global smartphone market, but Apple has always had it over Samsung in terms of operating profit to sales ratio. In particular, the operating margins of Apple and Samsung were 31.51 percent and 12.69 percent, respectively, in the first quarter of 2015 and the gap between the two companies reached as much as 18.82 percent point. The figures of Apple and Samsung in the fourth quarter of the same year stood at 31.86 percent and 11.52 percent. The operating profit rate of Apple was 2.76 times higher than that of Samsung. In 2015, Samsung saw its performance decrease and restructuring to be carried out, and Apple maintained a high profitability based on its high market share.

The gap in operating margins between the two narrowed starting from last year. The figure decreased to 14.25 percent point in the first quarter of 2016 and reached a record low of 7.62 percent point in the second quarter last year. However, it widened to some 8 percent points as Samsung’s operating margins rapidly plunged to 10.87 percent due to opportunity costs caused by the Galaxy Note 7 recalls in the third quarter last year.

Thanks to the boom in the semiconductor industry, growing sales of display panels and unexpected high performance of the Galaxy S7, the alternative product of the Galaxy Note 7, Samsung Electronics posted some 9 trillion won (US$7.52 billion) in operating profits in the fourth quarter last year in 13 quarters.

Apple plans to reveal its results in the fourth quarter of 2016 by the end of this month in Korean time. Apple saw its first decline in annual sales and net profits at the same time in 15 years as of the fiscal year of 2016, experiencing a minus growth. In addition, the company recently decreased 10 percent of the iPhone 7 production output and is about to readjust its performance owing to sluggish sales of premium smartphones.

Industry watchers expected that the operating margin gap of Samsung and Apple will narrow to 3 percent point, the lowest, when Apple records at about 20 percent of operating profits

 

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