3 Takeaways From Samsung Earnings

Many technology investors often overlook Samsung's (NASDAQOTH: SSNLF) earnings, choosing to focus on large American technology companies such as Apple, Alphabet, and Amazon.com. However, that would be a mistake. The South Korean electronics conglomerate often provides key takeaways for the market that companies tethered to one product or service often aren't able to provide.

Going by Samsung's earnings, the state of the technology industry is strong. Overall, the company exceeded expectations by posting 15.15 trillion Korean won (approximately $14.2 billion) in operating income, a 64% increase over the prior year and an all-time high. Samsung reported net income 12.26 trillion Korean won ($11.4 billion) and revenue of 65.98 trillion won ($61.4 billion), year-over-year increases of 73% and 24%, respectively.

Here are three things Samsung's earnings are telling investors.

Connected devices are in vogue -- and growing Samsung's bottom line

Samsung's operating profit was driven by the company's device solutions division, which produced approximately half of total revenue. Memory sales within the division increased 54% over the prior year, and device solutions comprised 80% of the company's operating profit. Analysts credit connected devices for the company's strong memory showing.

The newest products in the connected-device wars are home speakers and digital assistants, and Samsung's chip division is taking advantage of the trend. According to iFixit's teardown, Samsung has memory in Amazon's Echo Dot and in Alphabet's Google Home speakers. Look for this market to heat up, as Apple's HomePod is slated to launch in early February, and for Samsung to continue to profit.

The smartphone market is slowing, but its premium flagships are doing well

The smartphone market is becoming more bifurcated, and Samsung reflects that reality perhaps more than any other company. Overall, the company's mobile division reported a 10% year-over-year revenue increase but decreases in smartphone shipments. The company specifically notes "improved product mix due to an increase in flagship sales" for the increase in revenue and notes weakening sales at the low end.

This has been an acute issue for Apple, with the iPhone maker facing analyst concerns about its current flagship device, the iPhone X. Multiple reports from Apple's supply chain point to slowing demand for the phone. In the company's recently reported quarter, the company did sell fewer units than in last year's quarter, but higher average selling prices point to a mix shift toward Apple's more expensive phone.

Samsung may have waded into Apple's display rumors

Another reason to pay close attention to Samsung is its strong relationship with its biggest smartphone rival, Apple. Research from Counterpoint Technology found that Samsung makes $110 for every iPhone X unit sold, including the new OLED display. As such, Samsung's earnings can provide insight into Apple's plans.

Apple's smartphone innovation cycle typically spans two years. One year the phone is given a significant feature or form factor upgrade, and the next gets component and chip upgrades while incorporating the premium features from the prior year.

The iPhone X was considered the former, as FaceID unlocking technology and an upgraded OLED display were significant improvements over prior models. Naturally, it was expected that OLED-based iPhones would be the standard next year. Recent reports suggest that the company will produce two of the three units as OLED and an LCD unit. But the newest report from Digitimes is that Apple is "leaning toward" having only one OLED unit while releasing two LCD units.

Samsung may have given further credence to that rumor in its first-quarter outlook, noting, "With the smartphone market entering a period of weak seasonality, intensified competition with LTPS LCD and slow demand for OLED may cause a decline in profitability."

It should be noted that it's typically a slow season for Apple's iPhone sales, but that's not likely to quiet the rumors from the analysts who closely watch Apple's supply chain.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette, CFA owns shares of Alphabet (C shares) and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.