South Korea's Samsung Electronics has seen its handset business rise just as iPhone maker Apple recorded its second quarterly decline in shipments.

Samsung, which makes electronics products ranging from chips to refrigerators, said in a statement that its second-quarter profit this year grew, led by expanded sales of smartphones such as the Galaxy S7 and S7 Edge. Just a day earlier, Apple said that during its fiscal 2016 third quarter ended June 25, iPhone shipments fell to 40.4 million units from 47.5 million units in the same period a year ago.

Samsung shipped about 72 million smartphones in the second quarter this year, according to The Korea Herald, citing Samsung executives speaking on a conference call to announce the company’s financial results.

Apple topped Samsung in terms of profit, however. Samsung posted second-quarter profit of ₹48,648.65 crorerillion ($7.2 billion) compared with ₹41,891.89 crore (KRW6.9 trillion) in the same period a year ago. Apple’s quarterly profit came in at ₹52,702.70 crore ($7.8 billion), down from ₹72,297.39 crore ($10.7 billion) in the same period of 2015.

Samsung said demand for smartphones and tablets will increase in the second half of this year.

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In the third quarter, Samsung said it will release a new large-screen flagship smartphone to help sales of high-end handsets. Samsung also aims to expand smartphone sales this year by launching new mid-range and low-end versions of the Galaxy A and J series while unveiling the new Galaxy C series exclusively for the China market.

Overall smartphone shipments rose just 1% to 340 million units in Q2 2016, according to market watcher Strategy Analytics. Samsung’s market share rose 1.5% while Apple’s fell more than 2%, but the big winner was Oppo which more than doubled market share to 5.3, it said.

Oppo grew 137% annually in the quarter, outperforming all its major rivals. The vendor is very popular in China and is internationalising rapidly across India, Asia and other emerging markets, said Linda Sui, a director at Strategy Analytics.

“Apple continues to face iPhone fatigue among consumers and the new iPhone SE model has not been able to stem that trend,” said Neil Mawston, executive director of Strategy Analytics, speaking in a press release.

For its part, Huawei’s smartphone growth rate slowed dramatically, to just 5% annually in the quarter, compared with 52% annual growth in the same period last year, the market watcher reported.

Samsung 01 Figure 1: Oppo was the big smartphone winner in the last quarter according to one market watcher. (Image: Startegy Analytics)

Crimped Components

Samsung said second-quarter profit in its component business, which includes products such as semiconductors and liquid crystal displays (LCDs), slipped to ₹1,701.15 crore (KRW2.8 trillion) from ₹2,065.54 crore (KRW3.4 trillion) a year ago due to declines in average selling prices. Even so, Samsung said demand for mobile and non-volatile storage chips increased, helped by the company’s competitive edge in differentiated products, including 20nm DRAM, V-NAND and 14nm mobile application processors.

The company said orders for high-density mobile storage products with capacity exceeding 32GB helped drive sales, mainly due to strong demand from Chinese companies.

Samsung said the launch of new smartphones and the increasing adoption of 6GB memory chips in high-end smartphones will spur shipments of mobile DRAM in the second half.

In the second half of 2016, the company expects profit to improve from the first half, mainly driven by growth in sales of components. In the third quarter, Samsung said the component business will see improved demand for memory chips and LCDs as well as steady earnings for organic light-emitting diode (OLED) products and system LSIs.

Samsung’s system LSI business improved from the first quarter this year on stronger demand for 14nm mobile application processors in premium smartphones and increased sales of high megapixel image sensors.

In the second half, Samsung expects demand for OLED panels to rise despite a slowdown in the smartphone market. The company plans to expand the proportion of high value-added products such as flexible and high-resolution displays in its product mix.

Capex

Samsung’s total capital expenditure for the first half this year was ₹52,702.70 crore ($7.8 billion). Capex for the second quarter came in at ₹25,540.54 crore (KRW4.2 trillion), including ₹12,162.16 crore (KRW2 trillion) for the semiconductor business and ₹9,459.46 crore (KRW1.6 trillion) for the display panel business.

Samsung may lead the semiconductor industry in capex terms this year.

Samsung said that while full-year capex remains undecided, it will probably increase slightly compared to last year. The company said it will focus this year’s capex on OLED and V-NAND capacity as strong demand is expected for smartphone OLED panels and V-NAND storage devices.