Samsung forecasts profit drop for second straight quarter

Seoul, Apr 8: Samsung Electronics on Tuesday posted estimated first quarter operating profits of 8.4 trillion won ($7.96 billion), marking a second straight year-on-year decline as growth in global smartphone sales slows.

The estimate was in line with market expectations, with analysts having forecast profits for the world’s largest mobile phone maker of somewhere between 8.14 and 8.63 trillion won for the January-March period.

“The operating profits fell for two straight quarters year-on-year as profit margins in smartphones were falling and the growth rate in smartphone sales was decreasing due to growing competition,” analyst Young Park of Hyundai Securities told AFP.

While the figure marks a 1.08 percent increase on the previous quarter, it is 4.3 percent lower than a year earlier, when the South Korean giant — the world’s largest technology firm by sales — recorded operating profits of 8.78 trillion won.

It marks the second quarter of year-on-year decline in a row after Samsung posted Q4 operating profits 6.0 per cent lower than those a year earlier.

The company estimated a modest rise in first quarter sales to 53 trillion won, up 0.24 percent from a year earlier.

Shares in Samsung fell 0.29 percent midday while Seoul’s main stock market gained 0.07 percent.

Fixed first-quarter earnings are set to be announced later this month.

The figures come as growth in smartphone sales slows, with mature markets like North America and Europe near saturation.

This, coupled with the rapid expansion of smaller rivals like Chinese giant Huawei, has pressured Samsung to roll out cheaper handsets to woo consumers in emerging markets, especially China.

Analyst Greg Roh of HMC Investment Securities estimated the average price of Samsung smartphones at $209 in the fourth quarter of last year, down from $235 in the second quarter.

Nonetheless, estimated profits for Samsung’s mobile division grew to 6.2 trillion won in Q1 of this year, up from 5.5 trillion won in the three previous months, Park said.

This follows the earlier-than-expected release of its latest smartphone in South Korea, analysts said.

The Galaxy S5 – which Samsung hopes will cement its lead in the global smartphone market — came out at home on March 27, two weeks earlier than the global launch slated for April 11.

Park said Samsung’s television division was expected to have fared poorly this quarter due to sliding global prices, but that profits for the company’s semiconductor division would be about the same as in Q4.

For the whole of 2014, Samsung’s operating profit is likely to be around 37 trillion won, about the same as last year’s, he added — although Roh said the figure would probably fall to 35 trillion won because of the slowing demand for smartphones.

The company made more than 30 per cent of all smartphones sold in the world last year, nearly twice the share of its arch-rival Apple.

But Samsung is also faced with a daunting challenge to keep momentum in the increasingly saturated market.

Major handset makers have recently stepped up efforts to develop wearable devices, seen as a new source for growth — though few have managed to garner large consumer excitement or sales.

Samsung’s first Internet-enabled smartwatch, introduced last September, was greeted coldly by consumers who viewed it unfashionable. Its second edition, the Gear 2, was launched in February.

Apple is believed to be planning its own smartwatch launch soon, while Google is moving towards a wider consumer launch of its Internet-enabled eyewear Glass.

Samsung is also under pressure to set aside more cash for legal bills as years-long patent battles against Apple continue.

The two have locked horns in patent suits in several nations involving design and technologies on their smartphones and tablet computers.

A fresh patent trial opened in the United States last week, with Apple vowing to prove that Samsung flagrantly copied iPhone features and should pay more than $2 billion in damages.

Samsung is believed to have set aside an additional 300 billion won in the first quarter for patent payments, according to Byun Han-Joon, analyst at the Seoul-based KB Investment & Securities.

Operating profits are expected to climb to 9.3 trillion won in the second quarter as sales of Galaxy S5 pick up globally thanks to a lack of competing models, Byun said. Apple is not widely expected to update its line-up until September.

The 9.3-trillion won estimate, however, would still be lower than the 9.5 trillion posted in the second quarter of 2013.