Technology

Samsung Expects Record Q2 Profits: Can Apple Inc. Be Thanked For It?

Samsung said on Friday that it expects its Q2 profits to hit a new all-time high. A major portion of Samsung’s Q2 profits is expected to come from display panels and chips, a segment where its biggest customer is none other than its arch-rival Apple.

Samsung's Q2 profits
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Samsung’s Q2 profits to reach new high thanks to chip and display units

Samsung’s Q2 profits are expected to be 14 trillion won ($12.1B), an increase of 72% from the same quarter last year. A major portion of this profit is likely to come from the next-gen iPhone, notes 9to5Mac. Analysts expect the company to post a profit of 13.1 trillion won. Samsung expects revenue to come in at 60 trillion won (versus analysts’ forecast of 59 trillion won), up 18% from a year earlier.

Samsung is a major player in the segment for bendy, next-generation screens, which are expected to be used in Apple’s next iPhone, notes Reuters.

HMC Investment analyst Greg Roh said, “In July DRAM prices will go up again, while from mid-August on, OLED panels go out for Apple.”

Samsung’s Q2 profits are even expected to outstrip Apple’s. The U.S. firm is expected post operating income of $10.5 billion for the second quarter, notes Bloomberg. Samsung’s shares are trading near their record high with investors already anticipating record earnings this year driven by rising demand for the chips used to power servers and smartphones. Earlier this week, the Korean firm announced plans to invest $18.6 billion to ramp up its efforts in memory chips and next-generation displays.

Apart from chips and display panels, smartphone sales are another big profit earner for the Korean firm. The performance of Samsung’s phone division will be closely watched in the third quarter when the company releases the Galaxy Note 8. The handset will be the successor to the dreaded Note 7, which was pulled from the market last year due to battery-related issues.

Success of the iPhone is very important for Samsung

As of now, Samsung’s most profitable quarter is the third quarter of 2013, when it reported $9.6 billion in operating profit. At that time, the majority of profits came from the mobile unit, but the equation is different this time with the chip division emerging as the biggest contributor. Samsung is even expected to overtake Intel as the biggest chip vendor by revenue.

It is believed that Apple has a two-year contract with Samsung for the supply of 70 million to 92 million OLED screens. Apple’s demand for OLED screens would only increase as it experiments with newer display technology in the next-gen iPhones. To meet the growing demand, Samsung plans to build the world’s largest OLED production plant.

Apart from the display, Samsung also makes the display driver chip for the OLED screen and helps Apple’s supply chain management by sourcing components from other suppliers on the iPhone maker’s behalf, notes 9to5Mac. Apple is also believed to have contacted Samsung for some of its 3D NAND chips, so it is ironic that the Korean firm’s success (for now) is more dependent on the success of its rivals’ phones than on its own phones.