Samsung Electronics has announced W47 trillion in sales and W6.7 trillion in operating profit in the second quarter, its highest-ever operating profit and equivalent to W100 billion in profit every single day from April to June (US$1=W1,138).
Mobile phones accounted for 65 percent of profits at Samsung. The electronics giant sold 11 phones around every second to achieve W4.3 trillion in profit during the second quarter. Semiconductors, which helped catapult Samsung to the status of a global conglomerate, generated only W1.1 trillion in profit, while TV, refrigerators and displays fared poorly. This is why Samsung cannot afford to bask in its glory.
It was because of its failure to reorganize unprofitable products that Samsung's operating margin stood at 14.25 percent, far smaller than rival Apple's 39.3 percent. Despite marked top-line growth, Samsung cannot brag about a solid bottom line.
Moreover, the Samsung Group is overly dependent on Samsung Electronics, which accounts for 70 percent of total profits at the group. Samsung Heavy Industries and other construction-related units fared poorly, while its financial subsidiaries are showing no signs of improvement. In other words, the entire conglomerate relies on mobile phone sales, which account for more than 45 percent of group-wide profits. Thanks to booming mobile phone sales, the unprofitable units may be able to take a breather, but if handset sales ever falter, the entire conglomerate is at risk.
Each time Korea elects a new president, government officials are unable to predict the future direction of the economy as various corruption scandals and other revelations rattle Korean society. This time, officials may fall under the illusion that the economy is on a solid footing if they overlook the facts behind Samsung's stellar performance.
But already the coincident composite index, which reflects current business conditions, fell to 98.9 from 100.8 in July of last year. And the composite leading index, which predicts future economic activity, fell to 99.4 from 100.2. With the eurozone troubles and slowing Chinese economy impacting Korean exports, there are signs that the Korean economy may be heading toward another dip. If the government misreads the signs by looking at the earnings of just a handful of major business conglomerates, it could end up facing a real crisis in December, when voters head to the polls to elect a new president.