September 29, 2020

Profit at Samsung Disappoints

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:

Samsung Plays on Apple’s Turf to Introduce Galaxy S 4 Smartphone

At a packed event at Radio City Music Hall in New York on Thursday, Samsung showed off the Galaxy S 4, which has a screen slightly larger than the latest iPhone.

The device has quirky software features, including Smart Scroll, in which the front camera detects when someone is looking at the phone, and scrolls the screen according to the angle the phone is tilted. The phone can also be controlled with hand gestures. Waving a hand down in front of the phone will scroll up on a Web page, for example.

“Once you spend time with the Galaxy S 4, I’m very confident you’ll find how its innovations make your life simple and fuller,” said JK Shin, president of Samsung Mobile Communications, at the company’s first promotional event for its flagship smartphone.

With the prominent introduction of the phone, Samsung is trying to end its role as understudy to its more celebrated competitor, especially in the crucial American market, where Apple still rules. Even as Samsung has surpassed Apple in global market share, it is often criticized in the United States as an effective copycat, taking most of its product cues from Apple. But Samsung has begun flexing its marketing muscle more aggressively here to try to change that perception.

“This is Samsung’s time right now,” said Gene Munster, an analyst at Piper Jaffray. “They are clearly gaining more attention this time around than they ever have.”

Apple itself is showing signs of concern. In an unusual move on the eve of the Samsung event, Philip W. Schiller, Apple’s senior vice president for worldwide marketing, gave several interviews in which he discussed flaws in mobile devices based on Android, the Google operating system used by most of Samsung’s smartphones.

But Apple still has many big advantages that allow it to defend its position in the mobile business. Its iPhone 5 was the best-selling smartphone in the world in the holiday quarter, even though Samsung’s vast portfolio of phones is bigger than Apple’s. By charging a premium for its products, Apple raked in 69 percent of the profits in the smartphone business last year, compared with 34 percent for Samsung, according to a report by T. Michael Walkley, an analyst with Canaccord Genuity.

While analysts like Mr. Munster expect Samsung to gain market share in the United States in the coming two quarters, they predict Apple is likely to still dominate the crucial holiday shopping season, when gift shoppers buy mobile devices in droves. That is when sales of the iPhone typically outperform all other devices. By unveiling its flagship phone just before spring, Samsung is striking at Apple months before a new iPhone is expected to be released.

“Everyone stays out of the zone of iPhone launch periods,” said Horace Dediu, a blogger and analyst with Asymco.

Apple’s iPhones fly off the shelves in the United States, but Samsung is still the top seller of smartphones worldwide. And in the United States, Samsung is gaining.

In the fourth quarter of 2012, sales of Samsung devices accounted for 30 percent of the American smartphone market, up from 21 percent the previous year, according to NPD Group, the research firm. For the same time period, Apple’s iPhone accounted for 39 percent of the market, down from 41 percent the previous year.

Samsung is far exceeding Apple in its rate of growth worldwide. In the holiday quarter last year, Samsung shipped 63.7 million smartphones, up 76 percent from the previous year, according to IDC, the research firm. Apple sold 47.8 million, up 29.2 percent from the previous year.

Samsung has won the global volume race by releasing multiple models of smartphones at different prices and sizes, while Apple has released one new model every year. Along with the Galaxy S III, the Note II, a Samsung phone with an even bigger screen, has been a popular seller.

“Samsung’s momentum has been tremendous if you look at where they were three years ago to where it is today in the smartphone market,” said Chris Jones, an analyst at Canalys.

Apple of Cupertino, Calif., is famous for products that create markets, as was the case with the iPhone and iPad. Apple has accused Samsung of stealing many of its best ideas in the mobile market. Last year, it convinced a jury that Samsung had infringed Apple patents, winning a $1 billion award that a federal judge in the case recently reduced to $600 million, a figure that could change as the case develops. Some recent moves by Apple have appeared to be in response at least in part to competition from Samsung. It released a smaller iPad and a bigger iPhone after Samsung had been selling smaller tablets and smartphones with bigger screens for a while.

“Right now Apple is the challenger, and basically the power dynamics have changed already,” said Tero Kuittinen, an analyst at Alekstra, which helps companies reduce their phone bills. “Suddenly, Apple looks a little defensive.”

Before Thursday’s introduction, Samsung’s new smartphone generated nearly as much discussion and excitement in technology blogs as a new iPhone. “This is like the hype around the iPhone was two years ago,” Mr. Kuittinen said. “A year ago nobody cared about Samsung Galaxy S III. It’s not like the tech blogs wrote five posts a day about it.“

The Galaxy S 4 has several notable features. One, Dual Camera, allows the user to take a photograph with the front and rear-facing cameras simultaneously. At a basketball game, for example, a user can shoot a photograph of the game with the rear camera and the user’s reaction to it with the front camera; the two shots appear in one photograph.

Before Thursday’s event, a Samsung employee said the Smart Scroll feature would rely on tracking eye movements to determine where to scroll. When asked about the lack of eye-controlled scrolling in the new phone, David Park, a manager of Samsung’s mobile division, said the company had experimented with several approaches and decided to use the tilting method.

Samsung also added Group Play, which will allow multiple Galaxy phones to link together to play a game together. It uses Wi-Fi to bridge a connection.The phone will be available next quarter on Verizon Wireless, ATT, T-Mobile USA and Sprint. The older model, the Galaxy S III, was extremely popular because of its large screen and software capabilities; for a while it even outsold the iPhone. The company did not reveal a price for the Galaxy S 4, but said it should be the same as other premium Samsung phones, which have cost $200 with a contract.

To defend its lead in the market, Samsung will have to introduce capabilities in devices and set trends, said Chetan Sharma, a mobile communications consultant. But Mr. Kuittinen of Alekstra said Samsung has been setting the trends for a while. This year, Apple should introduce an iPhone with an even bigger screen, he said.

“They knew that if you do a phone with a huge 5-inch display, it will have big demand because it turns out people really want to have a phone with an enormous screen,” he said. “Apple didn’t know that.”

Article source: