Samsung Misses Estimates as High-End Phones Near Saturation
Samsung Electronics Co. (005930), the world’s biggest smartphone maker, posted second-quarter earnings that missed analyst estimates as market saturation for high-end handsets curbed sales growth for its flagship Galaxy S4.
Net income, excluding minority interest, rose 50 percent to 7.58 trillion won ($6.8 billion), from 5.05 trillion won a year earlier, the Suwon, South Korea-based company said in a statement today. That compares with the 8.02 trillion-won average of 24 analyst projections compiled by Bloomberg.
Purchases of high-end devices, the most-profitable segment of the $358 billion market, are slowing at the same time Samsung battles stalling demand for its televisions. Apple Inc., which posted better-than-expected iPhone sales, is slated to release an updated version this year as Chinese brands including Huawei Technologies Co. target emerging markets with $100 handsets.
“The mobile business, the company’s biggest bread earner, has already peaked out in the first quarter,” said Lee Jae Yun, an analyst at Kiwoom Securities Co. in Seoul. “That is increasing uncertainty over the company’s overall profit growth next year.”
Second-quarter sales were 57.5 trillion won, compared with a preliminary estimate of about 57 trillion won given by the company July 5. Capital spending this year will be 24 trillion won, Samsung said today.
Share Slump
Shares of Samsung, which accounts for 18 percent of the benchmark Kospi index, fell 0.7 percent to 1,306,000 won as of 10:58 a.m. in Seoul.
The stock slumped 13 percent in June, a $26 billion loss of market value that is larger than Sony Corp.’s market capitalization, as analysts at JPMorgan Chase & Co. and Morgan Stanley lowered their sales and profit estimates.
“The strong growth streak for the smartphone market is expected to continue in the third quarter albeit at a slower pace,” Samsung said in an e-mailed statement.
Operating profit, or sales minus the cost of goods sold and administrative expenses, rose to 9.53 trillion won in the second quarter, Samsung said today. That compares with the about 9.5 trillion won the company announced in preliminary earnings released earlier this month and the 9.99 trillion-won average of 34 analyst estimates compiled by Bloomberg.
The mobile unit, which is responsible for about two-thirds of company earnings, posted operating profit of 6.28 trillion won, up from 4.13 trillion won a year earlier.
Smartphone Sales
Doh Hyun Woo, an analyst at Mirae Asset Securities Co. in Seoul, expects growth in smartphone sales in emerging markets to help offset a slowing pace in developed nations.
“The growth momentum, as seen in the past, is unlikely to be sustained,” Doh said before the earnings announcement. “But since global smartphone penetration currently remains at 49 percent, the volume shipment will continue to increase until it reaches a level of about 70 percent.”
TongYang Securities Inc. (003470) expects Samsung to sell 27 million S4 devices in the third quarter, up from 22 million units delivered in the three months ended June, the brokerage said in a July 9 report. Smartphone-driven earnings growth will expand in the second half of the year, helped by the upcoming Galaxy Note 3 and S4 mini releases, TongYang said.
IPhone Demand
Apple reported third-quarter profit and sales that beat analysts’ estimates July 23. Though profit shrank in the quarter and iPhone sales fell from a year earlier, the stronger results helped soothe investor concerns that toughening market competition and high-end market saturation would drag Apple into a prolonged slump.
The Cupertino, California-based company sold 31.2 million iPhones in the quarter that ended June, surpassing analyst estimates of 26.1 million on average.
Samsung had about 30 percent of the smartphone market last year, while Apple accounted for about 19 percent, according to data compiled by Bloomberg.
The average price of a smartphone has plunged to $375 from $450 since the beginning of 2012, IDC estimates.
Operating profit at Samsung’s semiconductor division was 1.76 trillion won, compared with 1.03 trillion won a year earlier. Analysts estimated profit of 1.8 trillion won.
Samsung, which supplies more than half the mobile dynamic random-access memory chips used to run smartphones, said in April it may buy the semiconductors from rival SK Hynix Inc. (000660) because of surging demand.
Display Earnings
Operating profit from the display division, which makes flat panels for TVs and mobile devices, was 1.12 trillion won, compared with 710 billion won a year earlier.
The consumer-electronics unit, which oversees the TV and home-appliance businesses, posted operating profit of 430 billion won, down from 730 billion won a year earlier.
Prices for TVs were slashed as manufacturers struggled to stay profitable amid stalling demand. Samsung has 27.9 percent of the flat-panel market by revenue, researcher Display Search said in June. The world’s biggest TV maker started selling 55-inch curved OLED TVs for 15 million won in its home market last month.
“Growth will pick up under stronger seasonal demand although competition may intensify with launches of premium TV products,” the company said.
Worldwide shipments of liquid-crystal-display TVs may total 208.8 million units this year, less than the 215.5 million projected earlier, market research firm TrendForce said in a June 13 report.
Source: Bloomberg
