A slowdown in the sales growth of high-end smartphones has spread from Apple to its main rival, Samsung Electronics.
Samsung, the world’s biggest provider of mobile phones and semiconductors, said Friday that it expected to post an operating profit of 9.5 trillion won, or $8.3 billion, in the second quarter of the year, a 47 percent rise from a year earlier.
While many companies would envy such a growth rate, the forecast disappointed financial analysts, who had, on average, expected Samsung to post an operating profit of more than 10 trillion won in the April to June quarter.
While sales of smartphones continue to gain, the rate of increase for premium-priced devices like Samsung’s flagship line, the Galaxy S4, and Apple’s iPhone has been easing in recent months. Meanwhile, rival smartphone producers like Sony and HTC have mounted a renewed challenge with their latest handsets, increasing pressure on the two market leaders.
Analysts say much of the growth in smartphone sales in coming years will be at the lower end of the market, where Chinese manufacturers are gaining share. As smartphones become increasingly commoditized, prices will fall and profit margins will shrink.
“The concern is the future of the smartphone market, which is already saturated at the high end,’’ said C.W. Chung, an analyst at Nomura Securities. “The smartphone industry may be becoming more like the PC industry,” in which different manufacturers struggle to differentiate their products and consumers mostly buy based on price.
In April, Apple reported its first decline in earnings in a decade, as demand for iPhones eased from the torrid levels of the last few years.
A month earlier, in March, Samsung had introduced the Galaxy S4 amid considerable fanfare at an event at Radio City Music Hall in New York. While the new model has sold well, it has not performed as strongly as some analysts had expected. Meanwhile, the cost of all that marketing hype has eaten into profit margins.
Even before the news Friday, some analysts had been downgrading their sales and profit forecasts for Samsung. Meanwhile, investors have been punishing the stock prices of both Apple and Samsung. Shares of Apple have fallen by about 21 percent since the start of the year, while Samsung is down about 17 percent.
Mark Newman, an analyst at Sanford C. Bernstein in Hong Kong, said investors had become too pessimistic about Samsung, adding that he thought its profit margins would rebound in the second half of the year.
“At current valuations, the market is assuming the mobile business will destroy value going forward,” he wrote in a note to clients. “We believe Samsung is cheaper than ever and provides an extremely attractive entry point.”
Samsung is scheduled to post its official earnings report for the second quarter on July 26.
Even if smartphone profit margins fall and Samsung faces greater pressure from rivals, it could benefit in another way, because it is the biggest producer of the semiconductors used in smartphones and other computing devices. Prices of memory chips have been rising in recent months after a long slump.
While Samsung is also the world’s largest television producer, profit margins in that business have been squeezed by fierce competition. So Samsung remains highly dependent on its mobile division, which delivered three-quarters of the company’s operating profit in the first quarter.
The Galaxy S4 has actually gotten off to a quicker start than its predecessor model, the S3. It took the S4 only 60 days to sell 20 million handsets, compared with 100 days for the S3.
Samsung’s overall estimated revenue also grew strongly in the second quarter, rising by 20 percent, to 57 trillion won. But that, too, was slightly below analysts’ expectations.
“With Samsung, the market had gotten used to upside surprises,’’ Mr. Chung of Nomura said. “But the previous quarters were abnormal. People need to adjust their focus.”
Article source: http://www.nytimes.com/2013/07/06/business/global/samsung-earnings.html?partner=rss&emc=rss