Samsung has been among the year's brightest performers in smartphone markets across the world thanks to impressive sales of its Galaxy S7 and Galaxy S7 Edge flagship phones. With reports emerging that the company aims to sell as many as 350 million smartphones next year, S&P Global Ratings has also joined its list of admirers by giving the company an A+ long-term corporate credit and debt ratings as well as an A-1+ short-term corporate credit rating. The much-respected credit rating agency has based its ratings on Samsung's strong cash flows as well as the ability of the company to maintain its cash reserves despite increasing dividends to shareholders in the coming years.
Despite facing strong competition from rival phone makers in a volatile smartphone market, Samsung has been able to keep its chin above the water thanks to its diverse businesses and its ability to offer high quality premium products to customers. Apart from smartphones and tablets, the company is also a market leader in developing memory chips and display panels both for its products as well as on contract for a number of other technology companies. S&P Global Ratings adds that Samsung's chip-making business will remain profitable for the next three years despite the industry facing slowing demand owing to market saturation. "We expect Samsung's continued large investments in technology and fabrication facilities and high entry barriers in the chip industry to enable the company to sustain its leading position over the next two to three years," said Han Sang-yun, a credit analyst at S&P. The ratings agency also believes that Samsung will be able to keep its smartphone business stable and profitable in the next twelve months.
Despite such positive signs, S&P has also warned that Samsung's ratings may suffer if the company faces a sharp downturn in its smartphone business, is unable to maintain its operating margin above 10% or if the company gets overly aggressive in conducting acquisitions, share buybacks or investments. Even though such possibilities might occur in the future, the picture so far this year has been quite rosy. Samsung is expected to reap as much as $6.8 billion in profits in the second quarter of the year on the back of impressive sales of its memory chips as well as the new Galaxy S7 and Galaxy S7 Edge handsets. At the same time, the company has also fared well in mobile communications, 5G technologies and IT consulting which have helped it in maintaining its cash flows and overall profitability. With the company set to launch the much-awaited Galaxy Note 7 and also mass-producing 6GB RAM units, it may fare equally well in the third quarter despite the launch of Apple's iPhone 7 and iPhone 7 Plus handsets.