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Samsung profits driven by iPhone XS components, smartphone earnings plummeting

Samsung advises it will be reporting record operating profits in its upcoming quarterly results, but while seemingly a return to form for the South Korean giant, its earnings boost is partly due to supplying Apple OLED displays for the iPhone XS range.




Earnings guidance from Samsung Electronics released on Friday advise the company made a consolidated operating profit of approximately 17.5 trillion won ($15.5 billion) from consolidated sales of 65 trillion won ($57.6 billion) in the third quarter, making it Samsung's highest quarterly earnings on record. A full breakdown of the results has yet to be released, but is expected by the end of October.

Despite the lack of detail from Samsung, analysts advised CNN the year-on-year operating profit increase of approximately 20 percent is probably due to Samsung's stronger sales in its components business. SK Kim of Daiwa Capital Markets believes the high sales of memory chips, as well as higher earnings in Samsung's display business will have contributed significantly to the figure.

As the main supplier of OLED panels to Apple for its iPhone XS and iPhone XS Max, alongside LG Display, Kim suggests the high margins for the components certainly helped with revenue. Apple is thought to account for 25 to 30 percent of sales for Samsung's display business, with the unit estimated to have generated approximately 10 percent of Samsung's overall 54 trillion won ($48 billion) profit for last year.

While memory sales are said to have helped Samsung achieve record profits over the last year, there is some concern about slowing demand for memory chips, as well as a subsequent price reduction for the components. Analysts have warned about a potential downturn for memory, but it seemingly has yet to impact Samsung's revenue streams.

Once a major revenue source for Samsung, the company's smartphone arm is expected to report disappointing smartphone sales in the third quarter. Canalys analyst TuanAnh Nguyen suggests Samsung is suffering a "slowdown in many markets" for its mobile devices compared to last year, despite recently launching the flagship Galaxy Note 9.

Over the summer, Samsung revealed a 22-percent drop in its mobile revenues, despite shipping 83 percent more smartphones in the second quarter. While Samsung shipped 71.5 million units in Q2 2018 compared to Apple's 41.3 million iPhones, Samsung reported it had earned less than half the revenue of iPhone sales during the period.

While its smartphone business is thought to be dragging down revenue, an unexpected source has apparently helped prop up revenue. Analyst Kim believes a hot South Korean summer helped increase sales of air conditioning units from Samsung's consumer electronics division.