Samsung profit beats estimates on cheaper Galaxy smartphones

Samsung Electronics Co., the world’s largest maker of smartphones, posted first-quarter profit that beat analysts’ estimates as demand rose for cheaper Galaxy devices and the soccer World Cup boosted TV sales.

Net income, excluding minority interests, rose 24 percent to 7.48 trillion won ($7.2 billion) in the three months ended March, the Suwon, South Korea-based company said in a filing on Tuesday. That compares with the 6.75 trillion-won average of 19 analyst estimates compiled by Bloomberg.

Selling smartphones from less than $150 to more than $900 and expanding its range of tablet computers helped Asia’s biggest technology company weather slowing growth in the high- end smartphone segment before releasing its marquee Galaxy S5. Ultra high definition televisions and sets with curved screens are being introduced to revive sales as mobile-phone competition from Chinese manufacturers hits prices at its components unit.

“The first-quarter profit has hit the bottom and will trend up through the year,” said Lee Seung Woo, an analyst at IBK Securities Co. “The chip and display businesses will likely lead the earnings improvement going forward.”

Shares of Samsung rose 0.3 percent to 1,392,000 won as of 9:01 a.m. in Seoul, extending its gain for this year to 1.5 percent. The stock dropped 9.9 percent last year, its first annual decline since 2008.

S5 Incentives

Samsung is offering more than $600 worth of incentives for the Galaxy S5 to spark demand. The company boosted its smartphone market share in China to 19 percent in the fourth quarter from 17 percent a year earlier, according to researcher Canalys.

Its India sales grew by almost 37 percent in the fourth quarter compared with the previous quarter, according to International Data Corp. figures.

First-quarter operating profit at the mobile unit, which is responsible for more than 60 percent of the company’s total profit, was 6.43 trillion won. That is down 1.2 percent from a year earlier and compares with a record 6.7 trillion won in the quarter ended September 30.

The mobiles unit was expected to post profit of 5.9 trillion won, according to the median estimate of six analysts surveyed by Bloomberg News.

With Chinese producers including Xiaomi Corp. and Lenovo Group Ltd. packing premium features such as high-definition screens and faster processors into cheaper devices, Samsung is trying to stand out from other producers with incentives and applications.

Slowing Growth

Samsung started global sales of the S5 this month, with features including a 5.1-inch screen with a fingerprint reader, 16-megapixel camera, heart-rate sensor and water-resistant coating that can withstand 30 minutes at the bottom of a meter- deep (3-foot deep) pond.

The new device enters a smartphone market where global growth is expected to slow to 6.2 percent in 2018 from 19 percent this year, research firm IDC said in February. Already, Samsung’s operating profit has fallen for two straight quarters.

Increasing adoption of fourth-generation services, including in China, and the release of larger tablet computers may help Samsung weather price erosion in smartphones.

Display Loss

“In the global smartphone market, China is the largest market that we should pay a close attention to,” Lee Soon Hak, an analyst at KB Investment & Securities Co., said in an April 15 report.

“One of the biggest swing factors for Samsung’s earnings will be China’s demand for advanced network services during the second and the third quarter of the year.”

China Mobile Ltd., the world’s largest carrier by users, predicts it will sell about 100 million 4G devices by the end of the year.

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, posted an operating loss of 80 billion won, compared with profit of 770 billion won a year earlier, amid the high-end phone slowdown and sluggish demand for TVs.

“Earnings were impacted by cost increases related to the ramp-up of production in China coupled with the decline” in average selling prices, the company said.

Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities Co., expects Samsung to sell 19 million S5 phones in the current quarter with full year shipments reaching 50 million, helping boost display unit earnings from this quarter.

New Tablets

The company’s grip on the large-screen market it pioneered with products such as the 5.7-inch Galaxy Note 3 faces a new threat from other producers. Apple is developing new iPhone designs including bigger screens, a person familiar with the plans said last year.

Samsung will release its next Note in the second half of this year, and the device may feature a three-sided display so messages can be read from an angle.

In January, Samsung announced its largest tablet, with a 12.2-inch screen, as it seeks to win more business customers with features that allow users to split the display into four windows running different applications.

The tablet push will largely offset decreasing smartphone profits, Mark Newman, a Hong Kong-based analyst at Sanford C. Bernstein, said in an April 14 note.

Profit at Samsung’s chip unit, which supplies its own mobile phones and also those of competitors including Apple, was 1.95 trillion won.

World Cup

Samsung and Globalfoundries Inc. said April 17 that they agreed to team up in the made-to-order chip business, an alliance aimed at winning orders from Taiwan Semiconductor Manufacturing Co.

Operating profit at Samsung’s TV and home-appliance business was 190 billion won in the quarter, the company said.

“Orders for display panels that are used for premium smartphones and TVs are expected to increase, as new mobile devices are rolled out into the market and as consumers look forward to the upcoming World Cup in Brazil,” Samsung said.

Samsung introduced a wider line-up of curved TVs using ultra high definition screens this year to combat weakening sales. Ultra-HD, which offers four times the picture resolution of conventional displays, has struggled to gain traction in the market because of a lack of content for the format and higher prices.