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Published: Saturday, July 27, 2013, 12:01 a.m.

Samsung misses earnings estimates

SEOUL -- Samsung Electronics, the world's biggest smartphone maker, posted second-quarter earnings that missed analyst estimates as market saturation for high-end handsets curbed sales growth for its flagship Galaxy S4.
Net income, excluding minority interest, rose 50 percent to 7.58 trillion won ($6.8 billion), from 5.05 trillion won a year earlier, the South Korea-based company said Friday. That compares with the 8.02 trillion-won average of 24 analyst projections compiled by Bloomberg.
Purchases of high-end devices, the most-profitable segment of the $358 billion market, are slowing while Samsung also battles stalling demand for its televisions. Apple Inc., which posted better-than-expected sales of its iPhone, is slated to release an updated version this year as Chinese brands including Huawei Technologies Co. target emerging markets with $100 handsets.
"The market consensus has been already built since late last year that the profitability of smartphones will likely slow," said Ahn Seong Ho, a Seoul-based analyst at Hanwha Investment & Securities Co., said before the earnings release. "What matters now is by how much it will shrink."
Sales were 57.5 trillion won, compared with a preliminary estimate of about 57 trillion won given on July 5. Capital spending this year will be 24 trillion won, it said Friday.
The stock slumped 13 percent in June, a $26 billion loss of market value that is larger than Sony Corp., as analysts at JPMorgan Chase & Co. and Morgan Stanley lowered their sales and profit estimates.
"The strong growth streak for the smartphone market is expected to continue in the third quarter albeit at a slower pace," Samsung said in an e-mailed statement.
Operating profit, or sales minus the cost of goods sold and administrative expenses, rose to 9.53 trillion won in the second quarter, Samsung said Friday. That compares with about 9.5 trillion-won profit the company announced in preliminary earnings released earlier this month and the 9.99 trillion-won average of 34 analyst estimates compiled by Bloomberg.
The company's mobile unit, which is responsible for about two-thirds of earnings, posted operating profit of 6.28 trillion won, up from 4.13 trillion won a year earlier.
Doh Hyun Woo, an analyst at Mirae Asset Securities Co., expects further growth in smartphone sales as emerging markets adopt more of the handsets even if the pace slows in developed nations.
"The growth momentum, as seen in the past, will unlikely to be sustained," Doh said before the earnings announcement. "But since global smartphone penetration currently remains at 49 percent, the volume shipment will continue to increase until it reaches a level of about 70 percent."
TongYang Securities Inc. expects Samsung to sell 27 million S4 devices in the third quarter, up from 22 million units delivered in the three months ended June, the brokerage said in a July 9 report. Smartphone-driven earnings growth will expand in the second half of the year helped by the upcoming Galaxy Note 3 and S4 mini releases, TongYang said.
Samsung had about 30 percent of the smartphone market last year while Apple accounted for about 19 percent, according to data compiled by Bloomberg.
The average price of a smartphone has plunged to $375 from $450 since the beginning of 2012, IDC estimates.
Operating profit at Samsung's semiconductor division was 1.76 trillion won, compared with 1.03 trillion won a year earlier. Analysts estimated profit of 1.8 trillion won.
Samsung, which supplies more than half the mobile dynamic random access memory chips used to run smartphones, said in April that it may buy the semiconductors from rival SK Hynix Inc. because of surging demand.
Prices of benchmark 2Gb, 1333Mhz DRAM rose to $1.91 in June 28, up from $1.74 marked on April 1, according to TrendForce Corp.'s DRAMeXchange, Asia's largest market for the components. DRAM chips are used in personal computers to help run multiple programs simultaneously.
Operating profit from the display division, which makes flat panels for TVs and mobile devices, was 1.12 trillion won from 710 billion won a year earlier.
The consumer electronics unit, which oversees the TV and home-appliance businesses, posted operating profit of 430 billion won down from 730 billion won a year earlier.
Prices for TVs were slashed as manufacturers struggled to stay profitable amid stalling demand. Samsung has 27.9 percent of the flat-panel market by revenue, researcher Display Search said in June.
"Growth will pick up under stronger seasonal demand although competition may intensify with launches of premium TV products," the company said.
The world's biggest TV maker began selling the 55-inch curved OLED TVs for 15 million won in its home market last month.
Worldwide shipments of liquid-crystal-display TVs may total 208.8 million units this year, less than the 215.5 million projected earlier, market research firm TrendForce said in a June 13 report.

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