Galaxy phones power Samsung to record $5.15 billion profit

Galaxy phones power Samsung to record $5.15 billion profit
Highlights
  • Samsung reported a record quarterly profit, as its Galaxy smartphones and Note phone/tablet helped it win market share.
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Samsung Electronics Co, the world's top technology firm by revenue, reported a record quarterly profit on Friday, as its Galaxy smartphones and Note phone/tablet helped it win market share from Nokia and as it outmuscled Japanese rivals in TVs and memory chips.

The South Korean firm expected its solid earnings momentum to continue in the second quarter, driven by the release of new mobile products, a pick-up in demand for computers and rebounding memory chip prices.

Samsung did not break out its first-quarter smartphone and handset shipments, but analysts forecast it ended Nokia's 14-year leadership of the global cellphone market, outselling the struggling Finnish company for the first time.

Nokia sold 83 million handsets in January-March, including 12 million smartphones. Samsung is estimated to have sold 90 million handsets, including 44 million smartphones, according to analysts.

Samsung reported January-March operating profit of 5.85 trillion won, in line with its earlier estimate of 5.8 trillion won, and nearly double 2.95 trillion won a year ago. In the fourth quarter of 2011, the company had an operating profit of 5.3 trillion won.

Samsung shares rose 2.5 percent in a slightly firmer overall market to a record high of 1.373 million won, a near 30 percent gain so far this year.

Its handset division profit nearly tripled to 4.27 trillion won, accounting for 73 percent of total profit. Operating profit margin for handsets jumped to 18.4 percent from 11 percent a year ago and 12 percent in the preceding quarter, helped by strong sales of the high-end Galaxy S and Note.

"Handset momentum will continue this quarter when the new Galaxy S hits the market ahead of the launch of the new iPhone launch, its major competitor," said Brian Park, an analyst at Tong Yang Securities.

"The Galaxy S 3's specifications are expected to be sensational and it is already drawing strong interest from the market and consumers."

Cautiously optimistic
"We cautiously expect our earnings momentum to continue going forward, as competitiveness in our major businesses is enhanced," said Robert Yi, senior vice president and head of investors relations said in its earnings statement.

Samsung and Apple have formed a near duopoly in the high-end smartphone market, as rivals struggle to introduce compelling models that can successfully compete.

The duo controlled 90 percent of the high-end smartphone market last year and their combined stake will remain little changed at 88 percent by 2013, according to Bernstein analysts.

Samsung - which has deals with all three of China's big telecoms operators - already pushed out Nokia as China's top smartphone vendor in the fourth quarter, with around 25 percent market share, and analysts expect that to have increased.

"Samsung's smartphone success in the first quarter was the flip-side of Nokia's disappointment," Matt Evans, a CLSA analyst, said in a recent report.

China's smartphone growth has defied most forecasts, and South Korean smartphone chip maker SK hynix this week predicted smartphone sales in China could be 20-30 percent higher than originally expected, given the level of orders it has seen.

"Overall Chinese demand was very strong in the first quarter and will drive global smartphone shipments to over 700 million this year," Kim Ji-bum, SK hynix head of global marketing and sales, told analysts.

Samsung, which last year sold close to one in every five smartphones worldwide, should build on that market leadership with the launch in London next week of a third generation of its flagship Galaxy S, backed by heavy marketing ahead of the summer Olympics.

The new Galaxy will use Samsung's quad-core microprocessor, which it hopes to see in handsets sold by Nokia, HTC and Motorola, as well as Apple, its biggest customer.

Samsung also competes with Sony Corp and LG Electronics in TVs, Toshiba and SK hynix in chips and LG Display in displays.

"Samsung's handset earnings may weaken in the latter half of this year, with the possible launch of Apple's iPhone 5, but the recovery of chips and displays will more than offset potential drops, helping sustaining earnings momentum," said Park at Tong Yang.

Profits from semiconductor sales more than halved to 760 billion won, hit by tumbling computer memory chip prices, while TV and home appliances business boosted profits sharply to 530 billion won from a razor thin 80 billion won a year ago.

Samsung and its home rival LG Electronics are among the few global TV manufacturers making money and winning market share on the back of sleek design, crisp displays and new technologies.

Sony, Panasonic Corp and Sharp Corp expect to have lost a combined $21 billion in the business year just ended.

Copyright Thomson Reuters 2012
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Further reading: Galaxy, Nokia, Note, Panasonic, Samsung, Sharp, Sony, Toshiba
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