Samsung narrows profit margin gap with Apple

[THE INVESTOR] Samsung Electronics has narrowed its operating profit margin gap with archrival Apple, with the figure reducing to the lowest-ever 7.62 percent in the second quarter.

This is the first time that the gap has narrowed to a single-digit percentage point between the world’s top two smartphone-makers. 

According to its earnings guidance, Samsung posted 8.1 trillion won in operating profit and 50 trillion won in revenue in the April-June period. The operating profit margin stood at 16.2 percent, the highest since the third quarter of 2013 when the company recorded 17.2 percent.

Samsung, which will announce its second-quarter earnings on July 28, improved profits largely due to the upbeat sales of its latest flagship smartphone Galaxy S7 and its Edge variant. About 26 million units of the phones are estimated to have been sold since its March launch.

Apple’s profit margin still outpaces that of Samsung but the figure has continued to decline in recent years.

In the second quarter, Apple’s operating profit margin stood at 23.82 percent, down from 27.67 percent in the first quarter. In the fourth quarter of 2015, the figure was a whopping 31.86 percent, more than triple 11.52 percent of Samsung.

Feeling the pinch from stiffer competition in the saturated market, Apple logged US$10.5 billion in operating income and $42.4 billion in revenue, down 28 percent and 15 percent from a year ago, respectively.

The company especially saw the biggest sales drop in China where its device sales plunged 29 percent, while its US and European sales fell 6 percent and 16 percent, respectively.

Industry watchers say Apple’s upcoming new iPhone launch, possibly in September, may not be able to shift the downward trend.

“The new iPhone is expected to have no distinct change from its predecessor iPhone 6S,” said Kwon Sung-ryul, an analyst at Dongbu Securities.

He said the larger variant of the new phone, presumably the iPhone 7 Plus, featuring a dual-lens camera and a large memory capacity, could give a boost in overall device sales.

By Kim Young-won (wone0102@heraldcorp.com)