Bloomberg News

Samsung Galaxy Drives Record Profit as S4 Hits Stores

April 26, 2013

Samsung Electronics Profit Beats Estimates on Galaxy Sales

An event employee tries out a Samsung Electronics Co. Galaxy S4 smartphone during a launch event in Seoul on April 25, 2013. Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co. (005930) posted record earnings as sales of its smartphones surged, widening the company’s global lead as its latest Galaxy handset hits stores to take on Apple Inc. (AAPL) in the U.S.

Net income rose 42 percent from a year earlier to 7.15 trillion won ($6.4 billion) in the three months ended March, Samsung said in a statement today. Sales of its smartphones jumped 56 percent to 69.4 million units, almost double the number of iPhones sold by Apple, Strategy Analytics said.

Demand for Samsung’s devices, including the flagship Galaxy S4 that went on sale today and cheaper phones targeting emerging markets, are stoking sales in the $358 billion handset market and driving most of the Suwon, South Korea-based company’s profits. Samsung said competition in the market, which is already slowing Apple’s growth, may intensify this year.

“It yet again succeeded in taking away some of the smartphone share from Apple,” said Lee Seung Woo, an analyst at IBK Securities Co. “Demand for Galaxy S4 is outstripping its supply.”

Samsung, the world’s biggest maker of mobile phones, fell 0.5 percent to close at 1,486,000 won in Seoul trading, trimming the shares’ gain in the past year to 11 percent. Investors may not buy on today’s news as the company already reported preliminary operating profit April 5, Heo said.

IPhone Shipments

Shipments of iPhones rose 6.6 percent to 37.4 million units in the three-month period, the slowest pace on record, Strategy Analytics said in an e-mailed report. Cupertino, California- based Apple this week reported its first profit decline in a decade, saying second-quarter net income fell 18 percent to $9.55 billion.

Samsung’s net income exceeded the 6.73 trillion-won average of 36 analyst estimates compiled by Bloomberg. Sales rose to 52.9 trillion won from 45.3 trillion won, and operating income, or sales minus the cost of goods sold and administrative expenses, increased to 8.78 trillion won from 5.69 trillion won a year earlier, Samsung said today.

The company partly booked a damages payment to Apple in the quarter related to their patent dispute in the U.S.

Samsung’s capital spending in 2013 may be similar to last year’s 22.8 trillion won, the company said. That’s greater than the market capitalization of competitors Sony Corp. (6758), Panasonic Corp. or LG Electronics Inc. (066570)

Smartphone Competition

Operating profit at Samsung’s mobile unit was 6.51 trillion won. Profit at the consumer electronics unit, which oversees the TV and home-appliance businesses, fell to 230 billion won from 500 billion won a year earlier. Samsung is also the world’s largest maker of TVs.

“We may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market,” Samsung’s Senior Vice President Robert Yi said in a statement today. “TV growth will continue to wane in developed markets.”

Worldwide shipments of LCD sets, the biggest TV segment, fell for the first time in 2012, NPD Group Inc.’s DisplaySearch said March 21. The global average selling price for flat-panel TVs declined 2 percent, the Santa Clara, California-based researcher said.

Flagship handsets announced in the past year include HTC Corp.’s One, Nokia Oyj’s Lumia 920, the BlackBerry Z10 and Apple’s iPhone 5. Galaxy S4 sales will “sharply exceed” those of the previous S3, Kim Hyun Joon, vice president of the mobile communications business, said today during a conference call.

Galaxy S4

The Galaxy S4 -- with a 5-inch screen, 13-megapixel camera and motion-detecting software -- went on sale today in South Korea. Outlets in Australia and the U.S. will begin selling the device, which is thinner and lighter than its predecessor, tomorrow.

The phone, one of three high-end handsets being released by Samsung this year, is part of the company’s plan to win back the top spot in smartphone sales in the U.S., where it was overtaken by Apple in the last quarter of 2012. The Korean company previewed the handset with an event at New York’s Radio City Music Hall.

Samsung said yesterday that demand for the device is greater than expected after U.S. wireless carriers T-Mobile USA Inc. and Sprint Nextel Corp. (S) pushed back their release dates, citing shipment delays. Verizon Wireless, the largest U.S. carrier, doesn’t plan to make the Galaxy S4 available until May 30. The staggered rollout differs from Apple’s tightly controlled iPhone releases.

Component Shortages

“Samsung will deliver even stronger earnings in coming quarters,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd. in Seoul, which oversees about $5.4 billion.

Samsung’s sales have been so strong that the company, which supplies more than half the mobile dynamic random access memory chips used to run smartphones, may buy the semiconductors from rival SK Hynix Inc. to keep up with demand.

“Provided there are no major component shortages, Samsung should continue to deliver strong smartphone volumes,” Neil Mawston, executive director of Strategy Analytics, said in an e- mailed statement.

Sales of Galaxy devices in all price categories helped the unit fight off seasonal weakness, Oh Young Bo, an analyst at Hanmag Securities Corp. in Seoul, said before the earnings announcement. The company’s lower-end handsets appealed to customers in China and India who can’t afford iPhones, and Samsung said its low-end smartphone and tablet markets will expand in the second quarter.

Samsung’s second-quarter operating profit may exceed 10 trillion won for the first time, according to analyst estimates.

“The Galaxy S4 will be the biggest contributor to the company’s overall profit but will also be the biggest risk factor,” Doh Hyun Woo, an analyst at Mirae Asset Securities Co., said by phone today. “The real battle starts from the third quarter when many lower-end smartphones will be on the market and eating into margins. The mobile business may peak in the third or fourth quarter.”

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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