The Korean manufacturer managed to deliver on the ambitious fiscal Q4 guidance it gave earlier this month with the highest quarterly operating profits since 2013.
Even though last year was far from easy for Samsung Electronics (KRX: 005930), the company has managed to surprise investors with the best quarterly performance in years. According to the quarterly report, the consolidated operating profits for the fourth quarter of 2016 amounted to 9.2 trillion won ($7.8 billion), the highest since Q3 of 2013 and 50% up from a year earlier. In total, the full-year operating profit for 2016 was at 29 trillion won, which is still 10% up from 2015, despite the negative influence of the Note 7 recall in the second half of 2016, said Financial Times.
However, top quarterly performance does not mean that the influence of the Note 7 discontinuation on Samsung's financial performance was overrated. Instead, that negative influence was outweighed by the "rising star" of the Korean conglomerate - the semiconductor business. The operating profits of the part of Samsung empire that produces memory chips used in most smartphones including Apple (NASDAQ: Apple [AAPL]) jumped almost 77% from the year before and amounted to whopping 4.95 trillion won. What is more, as much as 47% of all Samsung's annual profits came from its semiconductor business, reported CNBC.
Next to that, the quarterly operating profits of Samsung's display business had a huge year-over-year jump from 300 billion won last year to 1.34 trillion won this quarter.
"For 2016, Samsung achieved solid results despite the Note 7 discontinuation in the second half as a result of continuous efforts during past two to three years to strengthen its component business competitiveness by focusing on value-added products and widening the technology gap in the DRAM business as well as strategic investments in V-NAND and OLED," the company wrote in a statement.
Shortly after Samsung's preliminary announcement earlier this month, the analysts claimed that the display and semiconductor businesses would help other company's businesses to recover from the scandal around self-inflaming Note 7 devices, since the demand for these technologies is only expected to grow further in 2017. An industry expert Mehdi Hosseini told CNBC that the prices for memory chips were expected to reach their highest level by September, meaning that Samsung's semiconductor business could grow further in the next two quarters.
Solid mobile sales
The struggling mobile business that was massively hit in the third quarter also showed some improvement, with its operating profits growing 12% to 2.5 trillion won as compared to the year before. The improvement was quite noticeable, since the profits were down to only 100 billion won in Q2 thanks to the biggest recall in the company's history. Samsung said the gains came from "solid sales" of its flagship products including such models as Galaxy S7 and S7 edge as well as growing profitability of the "mid-to-low end" models.
On Sunday, Samsung held a conference, where it revealed details of the investigation into the self-inflaming Note 7 devices. The company concluded that the batteries were, indeed, the main cause of the incidents:
"We wanted to increase the battery capacity as much as possible. Our battery suppliers, in order to meet our needs, applied new designs and manufacturing technologies. Conclusively speaking, the cause of the Galaxy Note 7 burning incident was in the batteries," said the Head of Samsung's Mobile business Koh Dong-jin, as reported by Al Jazeera.
Koh Dong-jin mentioned that the months-long testing involved 200,000 Note 7 devices and over 30,000 batteries.
Even though finally locating the problem that caused the failure of the Note 7 model as well as closing the last quarter of the year with impressive financial results help Samsung appear in better light, some analysts are still worried about the future of the company's main mobile business and the release of the newest smartphone models this year. One of the main reasons for that, according to The Verge, is the decision of Samsung's executives to stick with the Note brand and release the Note 7 successor, despite the big controversy around the line.
"I will bring back a better, safer and very innovative Note 8," Koh told CNET.
Considering a huge reputational and financial damage from the recall of Note 7 line last year, Samsung will be challenged by both customer and shareholders to deliver a superior smartphone line that will compensate for the failed "first attempt". However, chances are it will not be so easy to achieve within such a short timeframe, some say.
"The lessons of this incident are deeply reflected in our culture and process. Samsung Electronics will be working hard to regain consumer trust," Koh told the reporters, according to Reuters.