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Gadgets & Home Improvement

Samsung woos less affluent phone users to beat seasonal gloom

Samsung Electronics Co Ltd , the iPhone's main adversary, is expected to post a 46 per cent jump in first-quarter earnings as sales of mid-tier smartphones helped tide the South Korean giant over the off-peak season.
The Straits Times - April 8, 2013
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Samsung woos less affluent phone users to beat seasonal gloom

Samsung Electronics Co Ltd , the iPhone's main adversary, is expected to post a 46 per cent jump in first-quarter earnings as sales of mid-tier smartphones helped tide the South Korean giant over the off-peak season.

Samsung, due to release its January-March earnings guidance early on Friday, likely increased its quarterly operating profit to 8.3 trillion won (S$9.2 billion), a survey of 42 analysts by Thomson Reuters I/B/E/S showed. That would be 6 per cent less than the record 8.84 trillion won earned in October to December.

The Galaxy S and Note series have fuelled Samsung's record-breaking earnings growth and made it the No.2 player in the global premium smartphone segment after Apple Inc.

But as the high-end market swarms with new offerings, Samsung is turning to less affluent customers in emerging markets, offering cheaper models such as the Rex and Galaxy Pop, analysts said.

"Increasing sales of mid-tier products on top of the usual solid sales of its flagship models of the Galaxy S and Note probably helped Samsung fare better than its peers," said Mr Lee Sun Tae, an analyst at NH Investment & Securities.

"The first quarter will be the bottom of its earnings cycle for this year, and things will only get better from here as it rolls out new mobile products."

Samsung capitalised on its 30-plus smartphone models that cover nearly all price points to boost shipments to a record in the first quarter while the post-year end holiday season dulled sales at Apple, analysts said.

The South Korean firm likely shipped 68-70 million smartphones, up from 63 million in the December quarter, according to five analysts.

By comparison, Apple's iPhone shipments likely slumped some 30 percent to the 30 million range from 47.8 million in the previous quarter, they said.

Shares in Samsung, worth around US$220 billion (S$272.42 billion), fell 3 per cent over the past three months, exceeding a 2 per cent drop in the wider market. Apple lost 19 per cent in the same period.

END OF RECORD QUARTERS

The 8.3 trillion won estimated operating profit for January-March will mark the end of five record quarters.

But analysts said Samsung will likely mint a fresh all-time high of 9.7 trillion won in the current quarter as the Galaxy S IV hits the market later this month.

Of the 42 analysts surveyed by Thomson Reuters I/B/E/S, four predicted Samsung might surprise with a record first-quarter profit of up to 9.0 trillion won after the firm slashed spending on marketing from 12.8 trillion won in the fourth quarter.

Samsung's mobile devices division alone is estimated to have earned 5.8-6.4 trillion won in the first quarter, eclipsing the entire 5.7 trillion won that Samsung earned in the year-earlier period from all its businesses.

JPMorgan, the most bullish, estimates Samsung will report a 6.7 trillion won profit from the mobile division alone.

Samsung, which gets 70 per cent of its overall profit from its mobile devices business, is due to release its final first-quarter earnings results by April 26.

Soaring smartphone sales are increasingly becoming a major pillar just when parts supplies to Apple slow.

Mr Lee at NH Investment & Securities estimates that Samsung's microchip production rate fell to 80 per cent of capacity due to reduced orders from Apple as its biggest mobile processing chip client struggles with weak sales of iPad tablets.

"Reduced microchip sales to Apple is a major drag for its chip business, although recovery in computer memory chip prices eased the Apple impact on the overall bottom line," said Mr Seo Won Seok, an analyst at Korea Investment & Securities, slashing the first-quarter earnings forecast for Samsung's chip business by 11 percent.

Samsung pushed back construction of a new chip plant late last year, and said it would keep this year's investment flexible as Apple diversifies away from Samsung in component purchases.

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