Samsung Reports Jump in Q4 Profits as Record Chip Earnings Mask Galaxy Note 7 Failure

Samsung Electronics said Tuesday that its fourth-quarter profit more than doubled over a year earlier thanks to record-high earnings from its brisk memory chip business and strong smartphone sales despite costly Galaxy Note 7 recalls.

The South Korean company said Tuesday it posted KRW 7.1 trillion ($6.1 billion or roughly Rs. 41,539 crores) in net income during the October-December period, compared with KRW 3.2 trillion a year earlier.

Analysts surveyed by FactSet, a financial data provider, expected KRW 6.52 trillion.

Sales stayed flat at KRW 53.3 trillion ($45.6 billion or roughly Rs. 3,10,538 crores), the company said in a regulatory filing. Operating profit surged 50 percent over a year earlier to KRW 9.2 trillion ($7.9 billion or roughly Rs. 53,783 crores), in line with Samsung's guidance earlier this month.

The company, the world's largest maker of smartphones, television sets and memory chips, said its earnings during the current quarter will likely decline because of weaker TV sales and an increase in marketing expenses for the mobile business.

Samsung's earnings beat the forecasts even as it reels from troubles from a political scandal and the discontinuation of its fire-prone Galaxy Note 7, which has cost it at least $5 billion since the third quarter. On Monday, the company said battery design flaws and manufacturing errors by suppliers made some of the phones prone to overheat or to burst into fire.

The biggest force behind Samsung's forecast-beating earnings was its semiconductor businesses, which contributed more than half of the company's quarterly operating profit. Samsung made KRW 5 trillion ($4.3 billion or roughly Rs. 29,286 crores) in operating profit from its semiconductor division alone, thanks to higher demand for memory chips from mobile device makers and server operators.

Despite the challenge it faces in restoring consumer trust, in the absence of the Galaxy Note 7 smartphones, consumers snapped up Samsung's Galaxy S7 and S7 Edge, released in spring 2016, and other cheaper Galaxy smartphones. That helped Samsung's mobile business rebound from the previous quarter when the Galaxy Note 7 debacle wiped out its mobile profit. The division generated KRW 2.5 trillion ($2.1 billion or roughly Rs. 14,303 crores) in operating income during the final three months of 2016.

Demand for mobile devices pushed up demand for Samsung's advanced displays, called OLED, used by growing numbers of smartphone makers. Samsung said its display business generated KRW 1.3 trillion ($1.1 billion) in operating income.

After disclosing the earnings, Samsung said that it will buy back $8 billion worth of its shares in a way to increase shareholder values.

In a conference call, Samsung gave a preview of its mobile business plan for the year. It said its smartphones will feature artificial intelligence services and that it will introduce a "differentiated design," possibly hinting at a new, long-awaited foldable phone.

So far, the company's operations appear not to have suffered significant damage from the entanglement of its de facto head and Samsung heir apparent Lee Jae-yong, in an influence peddling scandal that led to the impeachment of South Korea's president, Park Geun-hye.

Lee, a Samsung vice chairman, got a break when a court rejected a request by prosecutors for an arrest warrant for bribery and other charges last week.

That was a setback but not the end to the investigation into Samsung's donations to non-profit foundations controlled by Choi Soon-sil, a confidante of Park's who is on trial for meddling in state affairs.