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Samsung Primed for Record Profit as S4 Phone Sales Set to Start

By Jungah Lee
April 05, 2013 3:38 AM EDT 16 Comments
Samsung Electronics Co. signage is displayed on billboards as pedestrians walk by during the release of the Samsung Electronics Co. Galaxy S4 smartphone in Times Square in New York on March 14, 2013.
Photographer: Michael Nagle/Bloomberg
Samsung Electronics Co. signage is displayed on billboards as pedestrians walk by during the release of the Samsung Electronics Co. Galaxy S4 smartphone in Times Square in New York on March 14, 2013.

Even without Christmas or the benefit of a new hit device, Samsung Electronics Co. (005930) posted near-record earnings in the first quarter. Profit (005930) is set to surge when the Galaxy S4 smartphone goes on sale this month.

The mobile-phone business again was the company’s biggest earnings driver, with sales of cheaper handsets in emerging markets supplementing growth by high-end Galaxy models. Operating profit rose to about 8.7 trillion won ($7.7 billion) in the three months ended March 31 from 5.69 trillion won a year earlier, Asia’s biggest technology company said today.

“Second-quarter profit looks even better than the first, as the Galaxy S4 will have a great impact,” said Chung Chang Won, a Seoul-based analyst at Nomura Holdings Inc. “Samsung’s shipments of its flagship smartphone will outpace that of the iPhone sometime in the second or third quarter.”

Operating profit for the quarter ended March 31 almost matched the record 8.84 billion won for the preceding quarter that included the year-end holiday season. Analysts estimate the current quarter could reach 9.3 trillion won as Samsung releases the S4 in the U.S. on April 26 and tries to reclaim the top spot in sales from Apple Inc. (005930)

Samsung, which is scheduled to release audited earnings results later this month, fell 0.7 percent to 1,505,000 won in Seoul trading today, compared with a 1.6 percent decline for South Korea’s benchmark Kospi index. The shares have declined 1.1 percent this year, compared with a 20 percent drop for Apple.

China, India

The first-quarter profit exceeded the 8.38 trillion-won average of 39 analyst estimates compiled by Bloomberg before the announcement. Sales rose to about 52 trillion won from 45.27 trillion won a year earlier, Samsung said.

Samsung’s mobile division, which accounted for 67 percent of total operating profit last year, probably had a first- quarter operating profit of 6.25 trillion won as sales increased 40 percent, according to a Bloomberg News survey of five analysts before today’s announcement. The company didn’t provide net income figures or results for individual businesses.

“In addition to the Galaxy S3, mini models sold well in emerging markets, including China, Brazil and India,” Lee Sei Cheol, a Seoul-based analyst at Meritz Securities, said by phone before the earnings release. “Samsung’s continued ascent in the smartphone industry seems to be unparalleled.”

Apple’s Lead

Samsung plans to release three high-end smartphones this year, including the S4, a new Galaxy Note and a device using the Intel Corp. (INTC)-backed Tizen operating system. The handset market grew almost 12 percent last year to $358 billion in sales, according to IDC.

The South Korean company unveiled the S4, featuring a bigger screen and improved software functions, on March 14 in New York as it chases Apple in U.S. sales. The new phone, featuring a 5-inch screen, 13-megapixel camera and motion- detecting technology so users can control features with face movements, will be available globally by early May, Samsung said last month.

Cupertino, California-based Apple (005930) extended its lead over Samsung in U.S. smartphone subscriptions in the three months ended in February, research company Comscore said in a statement yesterday.

Apple’s average share of smartphone subscribers in the country rose to 38.9 percent, from 35 percent in the three months ended Nov. 30, the research company said. Samsung’s share rose to 21.3 percent from 20.3 percent.

Samsung ‘Unstoppable’

Samsung’s first-quarter smartphone shipments probably increased 11 percent from the preceding quarter, said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities. With the S4 and the new Note scheduled for release this year, the company’s mobile division won’t reach its peak until the third quarter at the earliest, when Apple is expected to introduce a new iPhone, Song said.

“Samsung’s mobile division seems unstoppable, even during the typically slower first quarter,” Song said. “I expect Samsung’s second-quarter profit to be about 10.3 trillion won.”

The company’s shipments of flagship models, including the S4, may total 37.8 million units in the second quarter, Lee Seung Woo, an analyst at IBK Securities, said in a March 26 report. The average selling price may rise 17 percent, bringing operating profit at the mobile business to about 7.9 trillion won, according to Lee.

Surging Displays

Samsung’s total smartphone shipments may grow to 82 million units in the second quarter from 68.5 million in the first quarter, he said in the report.

Apple sold 47.8 million units in the quarter ended Dec. 31, it said in January.

In addition to its mobile division, Samsung probably boosted first-quarter operating profit in all segments including displays, chips and consumer electronics, according to the analysts surveyed by Bloomberg News.

Earnings at Samsung’s display unit, which dominates the market for panels using organic light-emitting diodes, or OLEDs, probably surged to 910 billion won from 230 billion won a year earlier, according to the analyst survey. The displays are used in Galaxy models.

Profit probably rose to 1 trillion won at the chip business from 700 billion won a year earlier, and to 500 billion won at the consumer electronics business, including TVs and home appliances, from 460 billion won a year earlier, according to the survey.

Sharp Investment

Samsung is counting on OLED displays, which offer brighter and sharper images than current liquid-crystal-display models, to extend its market lead in TVs. Samsung said Feb. 19 it will start selling OLED TVs in the first half of this year.

The company’s share of global flat-panel TV revenues rose 6 percent in 2012 from a year earlier, NPD DisplaySearch said in a March 21 report. Samsung had 27.7 percent market share by revenue, ahead of LG Electronics Inc. (066570)’s 15 percent, according to the Santa Clara, California-based research company.

Samsung invested 10.4 billion yen ($108 million) in struggling Japanese electronics maker Sharp Corp. (6753) last month to secure LCDs for smartphones and TVs.

Samsung’s executive vice president for its mobile business, Lee Young Hee, said in an interview last month the company is developing a wristwatch that may perform similar tasks as a smartphone. She had no comment on when the watch would go on sale.

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

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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