Tags: Samsung | Profit | IPhone | Sales

Samsung Profit Falls Short as IPhones Win Sales

Thursday, 23 January 2014 08:34 PM

Samsung Electronics Co. posted fourth-quarter earnings that missed analyst estimates as new Apple Inc. iPhones won high-end smartphone customers and gains in the South Korean won curbed the value of sales.

Net income, excluding minority interests, was 7.22 trillion won ($6.7 billion) in the three months ended Dec. 31, the Suwon, South Korea-based company said in a regulatory filing Friday. That compares with the 8.2 trillion-won average of 11 analyst estimates compiled by Bloomberg in the past 28 days.

Profit margins at the world’s biggest maker of smartphones are being squeezed as new iPhones and cheaper devices made by Lenovo Group Ltd. and Huawei Technologies Co. crimp growth of Samsung’s Galaxy devices. Currency moves cut about 700 billion won from earnings, and the company made bonus payments to workers and boosted marketing as it prepares to release its new S5 handset to battle Apple.

“A flood of Asian rivals from China and India, such as Lenovo, as well as a product refresh from Apple, are pressuring Samsung at the moment,” said Neil Mawston, an executive director at researcher Strategy Analytics. “The upcoming Galaxy S5 smartphone will help to stabilize profits, but it is unlikely to regrow them in such a crowded market.”

Samsung paid a special bonus of 800 billion won to workers in the quarter to celebrate the 20th anniversary of Chairman Lee Kun Hee’s new management strategy, it said.

The won was the best performing major Asian currency against the U.S. dollar in the fourth quarter with a 2.4 percent gain.

Capital spending in 2014 will be similar to last year, it said. The company spent 23.8 trillion won on capital expenditure last year.

Share Slump

Operating income for the three months was 8.31 trillion won, the first quarterly decline since 2011. Sales for the quarter were 59.3 trillion won.

Fourth-quarter operating income at Samsung’s mobile unit, the company’s biggest profit driver, was 5.47 trillion won, little changed from a year earlier and down from a record 6.7 trillion-won profit in the quarter ended Sept. 30, the company said.

Shares of Samsung rose 1.2 percent to 1,314,000 won as of 9:45 a.m. in Seoul. Before Friday, the stock had fallen 18 percent from its record close of 1,576,000 won on Jan. 2, 2013, wiping out $38 billion of market value.

Samsung, which sells about one of every three smartphones worldwide, plans to release the Galaxy S5 by April, pairing it with the successor to its Gear smartwatch, Lee Young Hee, executive vice president of the mobile business, said in a Jan. 6 interview.

Wearable Devices

The company is counting on new features to spark sales after the S4 fell short of analyst expectations amid competition from Chinese makers bringing out smartphones that sell for as little as $100.

Samsung will announce at least one other wearable device this year, Lee said without elaborating, as the company also releases new tablet computers to take on Apple’s iPad.

“Samsung’s two major challenges for 2014 are to maintain its mobile-phone leadership in China and the U.S., while simultaneously growing its tablet business quickly enough to knock Apple iPad from its perch,” Mawston said.

The company shipped 9 million units of the S4 in the fourth quarter, according to a Jan. 8 report from Daewoo Securities Co., lower than its earlier estimate of 13 million units, released on Dec. 23. In the third quarter, Samsung sold 17 million units, Daewoo said.

Apple shipped 33.8 million smartphones in the quarter ended Sept. 30, the iPhone maker said. The company started selling the iPhone 5s and the cheaper 5c in September.

China Threat

Samsung also faces a new threat from Apple after the Cupertino, California-based company struck a distribution deal with China Mobile Ltd., the world’s biggest carrier by users.

Samsung is the top seller in China, where large-screen devices such as its 5.7-inch Note have won customers who prefer one device for checking e-mail, browsing the Web and watching videos. The iPhone has a 4-inch screen.

“The biggest variable on Samsung’s earnings for this and even into next year will be if Apple introduced bigger-sized iPhones that would dent a space pioneered by Samsung,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul. “Consumers preferred the Galaxy over the iPhone mainly because of its bigger screens.”

New Displays

To address such challenges, the Galaxy maker’s next Note handset may use a three-sided display so messages can be read from an angle, Samsung’s Lee said Jan. 6. The latest model will be released in the second half of this year and be aimed at the high-end segment.

Operating profit at Samsung’s chip division, a supplier to Apple, was 1.99 trillion won, compared with 1.42 trillion won a year earlier.

A fire at an SK Hynix Inc. factory in Wuxi, China, in September pushed up chip prices, which remain near three-year highs.

The price of the benchmark DDR3 2-gigabit dynamic random- access memory chip reached $2.91 on Jan. 23, according to DRAMeXchange, Asia’s largest market for the components. That compares with $1.60 on Sept. 4, when the fire hit.

“The semiconductor business will perform better this year than last year,” said Lee Do Hoon, an analyst at CIMB Group Holdings Bhd in Seoul.

Consumer Electronics

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, had an operating profit of 110 billion won in the fourth quarter, compared with 1.11 trillion won a year earlier.

Slowing high-end smartphone sales on top of sluggish demand for TVs are weighing on display earnings.

Operating profit at Samsung’s consumer-electronics division, which includes the TV and home-appliance businesses, fell to 660 billion won from 700 billion won a year earlier.

Samsung said it will release its first TV set with a bendable screen later this year. Viewers can change the display from flat to curved by touching a button, it said Jan. 7.

To revive demand, the company is shifting its focus to less-expensive ultra high definition screens, which offer four times the resolution of conventional displays, from sets using OLED technology because of OLED’s high manufacturing cost and slow consumer adoption.

Industrywide, global TV shipments are forecast to reach 228.7 million units in 2014, up 1.1% from 226.2 million in 2013, according to market researcher NPD DisplaySearch.

“This would be a small turnaround as unit shipments were down 6 percent in 2012 and 3 percent in 2013,” NPD said in a Jan. 21 e-mail.

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Samsung Electronics Co. posted fourth-quarter earnings that missed analyst estimates as new Apple Inc. iPhones won high-end smartphone customers and gains in the South Korean won curbed the value of sales.
Thursday, 23 January 2014 08:34 PM
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