Bloomberg News

Samsung Beats Estimates as Galaxy Fends Off IPhone 5

January 08, 2013

Samsung Profit Surpasses Estimates as Galaxy Fends Off IPhone 5

A pedestrian walks past a Samsung Electronics Co. retail store in Yangon, Myanmar. Photographer: Dario Pignatelli/Bloomberg

Samsung Electronics Co. (005930), the world’s largest maker of mobile phones and TVs, reported higher-than- expected fourth-quarter earnings as sales of Galaxy smartphones withstood the debut of Apple Inc. (AAPL:US)’s iPhone 5.

Operating profit rose 89 percent to a record 8.8 trillion won ($8.3 billion) in the three months ended December, Samsung said in a statement of preliminary results today. That compares with the 8.5 trillion-won average of 35 analyst estimates compiled by Bloomberg. The Suwon, South Korea-based company didn’t give net income or divisional figures.

Sales jumped 18 percent to 56 trillion won, helped by demand for Galaxy Note II and Galaxy S III phones. Earnings at the mobile-phone unit probably doubled from a year earlier, according to a Bloomberg News survey of five analysts, while sales of iPhone 5s were hit by glitches with mapping software.

“Samsung was the major beneficiary of slower-than-expected sales of Apple’s iPhone 5,” James Song, an analyst at Daewoo Securities Co. in Seoul, said by phone today. “The biggest challenge ahead is whether it can maintain its competitiveness in the smartphone market as high-end products are expected to be released by big players like Apple and Google.”

Galaxy Sales

Samsung sold about 62 million smartphones in the quarter, compared with Apple’s 45 million, according to a Daewoo estimate. The South Korean company is in a global patent legal fight with Cupertino, California-based Apple, which is also its biggest customer. The iPhone 5 went on sale in September.

Operating profit may be 200 billion won higher or lower than today’s estimate when audited results are announced later this month, Samsung said. Sales may differ by as much as 1 trillion won.

The company fell 1.3 percent to 1,501,000 won at 2 p.m. in Seoul trading. It surged 44 percent in 2012, compared with a 31 percent gain for Apple in New York.

Earnings may have disappointed some investors because expectations were rising ahead of the statement, said Sean Kim, a Seoul-based analyst at Standard Chartered Bank Plc. The company also has to grapple with a stronger won, which dents the repatriated value of overseas sales.

“The biggest risk factor is the strengthening Korean won,” Kim said. “In the longer term, possible price competition in the smartphone space also poses a risk.”

Stronger Won

The won traded at about 1,063 to the dollar today. It may hit 1,030 this year, according to Standard Chartered. The currency has strengthened about 9 percent in the past year, the biggest gain among major Asian currencies, according to data compiled by Bloomberg. The yen has weakened 12 percent, the largest drop, aiding Samsung’s Japanese competitors Sony Corp. and Sharp Corp.

Fourth-quarter operating profit at Samsung’s telecommunications unit, its biggest profit driver, probably rose to 5.72 trillion won, according to the Bloomberg News survey. The display unit likely made a 1.06 trillion-won profit, compared with a loss a year earlier, according to the survey.

Asia’s biggest consumer-electronics company probably increased marketing spending for the year-end shopping season to better compete with new products from Apple and other rivals, said Park Hyun, an analyst at Tong Yang Securities in Seoul.

Galaxy Sales

Sales of the Galaxy S III reached 30 million units five months after it was introduced in May, Samsung said in a Nov. 4 statement. The company also is reaping profits from its Galaxy Note II phone-tablet device, introduced in September, which reached sales of more than 5 million units as of November, the company said Nov. 26.

Sales of Galaxy S IIIs may suffer this quarter ahead of the anticipated introduction of the new Galaxy S IV device in the following three months, said Kim Hyoung Sik, an analyst at Taurus Investment & Securities. Still, the company will maintain its top position in the global handset market because of mid-end smartphone sales, Kim said.

The company may also have to book charges this quarter following a U.S. court ruling in its patent fight with Apple, said Greg Roh, an analyst at HMC Investment Securities in Seoul. Apple won a $1.05 billion damage award against the Korean company in a lawsuit in August.

“There is a risk that Samsung may have to set aside the provisions,” Roh said. Earnings may “turn for the better” in the second quarter on the possible introduction of the Galaxy S IV, he said.

Damages Cut?

Apple also last month failed in a bid to block sales of some Samsung devices, fueling speculation the damages could be reduced. U.S. District Judge Lucy H. Koh in San Jose, California, said in a Dec. 18 ruling that Apple didn’t establish that consumer demand for Samsung products was driven by technology stolen from the U.S. company.

The European Union is also probing whether Samsung violated agreements to license key patents to other mobile-phone makers on fair terms. Samsung said last month it’s withdrawing injunction requests against Apple in Europe involving key patents it holds for wireless communications, citing “the interest of protecting consumer choice.”

Samsung, also the world’s biggest supplier of ultra-thin organic light-emitting diode, or OLED, displays, probably saw rapid growth at its display business in the final three months of 2012, largely driven by sales of its own mobile devices, David Choi, an analyst at SK Securities, said before the earnings announcement.

The unit had an operating profit of 1.06 trillion won, compared with a loss of 220 billion won a year earlier, according to the Bloomberg News survey.

Operating profit at Samsung’s chip business was estimated at 1.52 trillion won in the fourth quarter, down from 2.31 trillion won a year earlier, according to the survey.

Earnings at Samsung’s consumer-electronics business, including TV operations, probably fell to 530 billion won from 620 billion won a year earlier, while sales were probably unchanged as consumers put off purchases of high-end TVs with voice-recognition capability and 3-D displays, according to the Bloomberg News survey.

Following is a table showing median operating-profit estimates for the four main business divisions of Samsung. The estimates are in billions of won and (-) indicates a loss.

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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