Tags: Samsung | Profit | Galaxy | Smartphone

Samsung's Profit Bulges on Cheaper Galaxy Smartphones

Monday, 28 Apr 2014 09:14 PM

Samsung Electronics Co., the world’s largest maker of smartphones, posted first-quarter profit that beat analysts’ estimates on growing demand for cheaper Galaxy devices in China and India.

Net income, excluding minority interests, rose 24 percent to 7.48 trillion won ($7.2 billion) in the three months ended March, the Suwon, South Korea-based company said in a filing Tuesday. That compares with the 6.75 trillion-won average of 19 analyst estimates compiled by Bloomberg.

Selling smartphones from less than $150 to more than $900 and expanding its range of tablet computers helped Asia’s biggest technology company weather slowing growth in the high- end smartphone segment before releasing its marquee Galaxy S5. Ultra high definition televisions and sets with curved screens are being introduced to revive sales as mobile-phone competition from Chinese manufacturers hits prices at its components unit.

“They can sell cheaper, but no company out there can manufacture smartphones cheaper than Samsung can,” Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities Co., said before the announcement. “It also has a broad in-house sourcing structure, helping its products stay more cost-competitive.”

Shares of Samsung fell 0.8 percent to 1,388,000 won in Seoul trading Monday, curbing its gain for this year to 1.2 percent. The stock dropped 9.9 percent last year, its first annual decline since 2008.

S5 Incentives

Samsung is offering more than $600 worth of incentives for the Galaxy S5 to spark demand. The company boosted its smartphone market share in China to 19 percent in the fourth quarter from 17 percent a year earlier, according to researcher Canalys.

Its India sales grew by almost 37 percent in the fourth quarter compared with the previous quarter, according to International Data Corp. figures.

First-quarter operating profit at the mobile unit, which is responsible for more than 60 percent of the company’s total profit, was 6.43 trillion won. That is down from a record 6.7 trillion won in the quarter ended Sept. 30.

With Chinese producers including Xiaomi Corp. and Lenovo Group Ltd. packing premium features such as high-definition screens and faster processors into cheaper devices, Samsung is trying to stand out from other producers with incentives and applications.

Samsung started global sales of the S5 this month, with features including a 5.1-inch screen with a fingerprint reader, 16-megapixel camera, heart-rate sensor and water-resistant coating that can withstand 30 minutes at the bottom of a meter- deep (3-foot deep) pond.

Slowing Growth

The new device enters a smartphone market where global growth is expected to slow to 6.2 percent in 2018 from 19 percent this year, research firm IDC said in February. Already, Samsung’s operating profit has fallen for two straight quarters.

Increasing adoption of fourth-generation services, including in China, and the release of larger tablet computers may help Samsung weather price erosion in smartphones.

“In the global smartphone market, China is the largest market that we should pay a close attention to,” Lee Soon Hak, an analyst at KB Investment & Securities Co., said in an April 15 report. “One of the biggest swing factors for Samsung’s earnings will be China’s demand for advanced network services during the second and the third quarter of the year.”

China Mobile Ltd., the world’s largest carrier by users, predicts it will sell about 100 million 4G devices by the end of the year.

Display Loss

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, posted an operating loss of 80 billion won amid the high-end phone slowdown and sluggish demand for TVs.

“Earnings at its display unit will improve from the second quarter, helped by shipment growth of OLED panels for S5 device,” Lee at NH Investment & Securities Co. said.

Lee expects Samsung to sell 19 million S5 phones in the current quarter. For the year, S5 shipments will reach 50 million, he said.

The company’s grip on the large-screen market it pioneered with products such as the 5.7-inch Galaxy Note 3 faces a new threat from other producers. Apple is developing new iPhone designs including bigger screens, a person familiar with the plans said last year.

Samsung will release its next Note in the second half of this year, and the device may feature a three-sided display so messages can be read from an angle.

New Tablets

In January, Samsung announced its largest tablet, with a 12.2-inch screen, as it seeks to win more business customers with features that allow users to split the display into four windows running different applications.

The tablet push will largely offset decreasing smartphone profits, Mark Newman, a Hong Kong-based analyst at Sanford C. Bernstein, said in an April 14 note.

Profit at Samsung’s chip unit, which supplies its own mobile phones and also those of competitors including Apple, was 1.95 trillion won.

Samsung and Globalfoundries Inc. said April 17 that they agreed to team up in the made-to-order chip business, an alliance aimed at winning orders from Taiwan Semiconductor Manufacturing Co.

Operating profit at Samsung’s TV and home-appliance business was 190 billion won in the quarter, the company said.

Samsung introduced a wider line-up of curved TVs using ultra high definition screens this year to combat weakening sales. Ultra-HD, which offers four times the picture resolution of conventional displays, has struggled to gain traction in the market because of a lack of content for the format and higher prices.

© Copyright 2017 Bloomberg News. All rights reserved.

 
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South Korea-based Samsung Electronics, the world's largest maker of smartphones, posted first-quarter profit that beat analysts' estimates on growing demand for cheaper Galaxy devices in China and India.
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2014-14-28
Monday, 28 Apr 2014 09:14 PM
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