Tags: Samsung | Profit | S4 | Sales

Samsung Profit Misses Estimates on Weak S4 Sales

Thursday, 04 Jul 2013 08:15 PM

 

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Samsung Electronics Co., the world’s biggest smartphone maker, posted second-quarter earnings that missed analyst estimates as sales of its flagship Galaxy S4 handset fell short of analyst expectations.

Operating profit rose to about 9.5 trillion won ($8.3 billion) in the three months ended June from 6.5 trillion won a year earlier, Suwon, South Korea-based Samsung said in preliminary earnings released Friday. That compares with the 10 trillion-won average of 34 analyst estimates compiled by Bloomberg.

The S4 was released in April with a bigger screen and motion-detecting software to help Samsung reclaim the top spot in the U.S. market from Apple Inc.’s iPhone and boost growth at its biggest source of earnings. The stock slumped 13 percent last month as at least 15 analysts cut earnings estimates amid concern the high-end smartphone market is nearing saturation.

“Expectations over the Galaxy S4 device was way too high,” Park Hyun, a Seoul-based analyst at Tong Yang Securities, said before Friday’s earnings release. “High expectation came with high disappointment.”

Sales were about 57 trillion won in the June quarter compared with 47.6 trillion won a year earlier, the company said. That compares with the 58.6 trillion-won average of 38 estimates.

Shares of Samsung, which accounts for 19 percent of the benchmark Kospi index, rose 1.2 percent to 1,317,000 won Thursday in Seoul. The stock has dropped 13 percent this year, compared with a 7.9 percent decline in the Kospi.

Shares Slump

Last month, Samsung lost $25.3 billion in market capitalization, more than the value of competitor Sony Corp., as analysts scaled back expectations for the S4.

Samsung didn’t provide net income figures or a breakdown of division earnings with audited results due to be reported later this month.

Apple became the largest smartphone vendor in the U.S. in the fourth quarter of last year, Strategy Analytics said in February.

Operating earnings at the telecommunications unit probably rose to a record 6.9 trillion won in the quarter, according to the median estimate of six analysts surveyed by Bloomberg News. Sales may have gained 54 percent to 36 trillion won.

In the absence of a new handset from Apple so far this year, Samsung is counting on the S4 to appeal to high-end shoppers. The company, which unveiled the S4 at New York’s Radio City Music Hall, said May 23 it sold 10 million units within the first month -- about half the time it took the S3 to reach that mark. The new phone features a 5-inch screen and 13-megapixel camera.

Cheaper Handsets

Scaled-down versions of the Galaxy and other models are being released to protect market share from Chinese rivals selling smartphones for $100. Samsung shipped 69.4 million smartphones in the first quarter, Strategy Analytics said in April.

To help boost demand for its devices, Samsung worked with rapper Jay-Z to launch his new album before its official release via an app exclusive to models including the Galaxy S3, S4 and Note 2.

Shares of Samsung, which sells nearly one of every three mobile phones, dropped 13 percent in June as analysts at JPMorgan Chase & Co. and Morgan Stanley lowered sales estimates for the S4 by as much as 25 percent. The slide cut the Korean company’s market value by more than $25 billion.

‘Galaxy Fatigue’

“Apple is suffering from iPhone fatigue, while Samsung is suffering from Galaxy fatigue,” Neil Mawston, executive director of Strategy Analytics, said in an e-mail before the release.

Samsung plans to release more high-end models this year, including a device using the Tizen operating system as early as August and the Galaxy Note 3, Samsung said in March.

Profit at the semiconductor division probably rose 74 percent to 1.8 trillion won on sales of 9.41 trillion won, according to the Bloomberg News survey.

The price of the benchmark DDR3 2-gigabit DRAM closed at $1.92 on July 1, compared with $1.74 on April 1, according to data from Taipei-based DRAMeXchange Technology Inc., operator of Asia’s largest spot market for semiconductors.

Chips Recover

A limited chip supply and increasing demand for mobile semiconductors, especially from China, is helping push up prices, said Kim Young Dae, an analyst at Taurus Investment & Securities Co. in Seoul. Samsung makes more than half the world’s mobile dynamic random access memory chips.

“The continued rise in chip prices is expected throughout the latter half of the year,” Kim said.

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, likely had an operating profit of 1.1 trillion won, according to the Bloomberg News survey. Sales at the division, which supplies its own handsets and tablet computers, probably fell to 7.91 trillion won.

Operating earnings from the TV-making unit probably slumped to 390 billion won in the June quarter, according to the analyst survey, as companies struggled to stay profitable by slashing prices. Samsung is the world’s biggest TV maker with 27.9 percent market share by revenue from flat-panel sets, researcher Display Search said in June.

Samsung and closest competitor LG Electronics Inc. have struggled to profitably manufacture sets using OLEDs, which offer a brighter and sharper picture than the liquid-crystal displays used in most flat screens.

© Copyright 2014 Bloomberg News. All rights reserved.

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