Samsung’s making more money from chips and screens, but not from phones

Enlarge / Samsung is making pretty good premium flagships these days, but they're not the phones most people are buying. (credit: Ron Amadeo)

Samsung's third-quarter earnings report is out, and the results are mixed. On the one hand, profits are up year-over-year for the first time since early 2014 (PDF). The company's operating profit is up to ₩7.4 trillion ($6.47 billion), an 82 percent increase from ₩4 trillion last year, and revenue is up nine percent from ₩47.4 trillion to ₩51.7 trillion ($49.85 billion). On the other hand, profits from its once-enviable smartphone business continue to slide, even though sales are doing fairly well.

Luckily for the company, its component business is picking up the slack. According to a report from the Associated Press, Samsung's semiconductor division is responsible for about half of its total profit at ₩3.66 trillion, and that's due at least in part to Apple's business. Samsung builds some of the A9 chips supplied for the new iPhone 6S and 6S Plus, and it also makes the Apple A7 chips used in the lower-end iPhone 5S, iPad Air, and iPad Mini 2. Samsung's OLED display business is also doing well, contributing ₩900 billion to Samsung's profit.

Samsung still sells a lot of phones—about 84.5 million worldwide during the quarter, according to IDC estimates, making it by far the largest smartphone company by shipments. And phones still made the company ₩2.4 trillion in profit, nothing to sneeze at. But the average selling price for those phones is between $180 and $190, less than half of what the cheapest iPhone sells for. There's a reason why Apple takes home almost all of the profit in the smartphone business, and it's because it's the only company that isn't being eaten alive by cheap-but-competent low-end and midrange models.

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