Samsung smartphone challenge looms

SEOUL:  Samsung Electronics Co Ltd on Tuesday said it expected stronger earnings in the second quarter as a pickup in sales of high-end televisions and smartphones spurs growth, after it posted its second straight fall in quarterly profit.

The South Korean tech giant said the football World Cup in Brazil should help boost sales of screens and smartphones in the current quarter, as fans splurge on up-market devices like ultra high-definition (UHD) TVs to watch the action.

A revival of sales of upmarket TVs and smartphones is crucial for Samsung to sustain growth, as its mainstay mobile business, which generated three fourths of its first-quarter profit, reported its first smartphone market share loss in four years.

But while sports-related demand should be positive, analysts say the dearth of UHD-standard content and high prices could limit the upside for sales of premium devices from the football extravaganza.

"Their handset shipments guidance suggests there will be low single-digit growth for smartphone shipments for the second quarter, which I think might be below street expectations," said Maybank Kim Eng analyst Warren Lau.

Samsung said handset shipments in the second quarter should be similar to 113 million seen in the January-March period, though smartphones such as the Galaxy S5 should make up more of the April-June shipments.

"Samsung is expected to see profits rally in the second quarter and beyond, on the back of improved sales of display panels and home appliances," Samsung said in a statement.

"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."

Shares of Samsung Electronics, worth $220 billion, were down

1.7 percent at midday, worse than a 0.3 percent fall in the benchmark Korea Composite Stock Price Index.

Profit drop

For January-March, the world's biggest technology firm by revenue said operating profit fell 3.3 percent from a year earlier to 8.5 trillion won ($8.2 billion), versus guidance of 8.4 trillion won.

Profit in the mobile division was 6.43 trillion won, down 1.2 percent from 6.51 trillion won a year earlier.

The world's biggest smartphone maker is now banking on its premium Galaxy S5 handset, launched earlier this month, to outsell its predecessor and widen profit margins, a senior executive told Reuters earlier.

The end of the heyday of smartphone innovation has left Samsung – which posted five straight record quarterly profits until the first quarter of 2013 – facing its first annual profit fall in three years, according to analysts polled by Reuters.

The firm's broad range of low-end phones is being caught by the improving quality of Chinese-made offerings, while the large-screen advantage of its top-end phones is expected to come under threat from Apple's next iPhone.

"Samsung continues to face tough competition from Apple at the higher-end of the smartphone market and from Chinese brands like Huawei at the lower-end," Neil Mawston at researcher Strategy Analytics said.

Any further decline in profitability could increase shareholder pressure on the company to produce a new growth engine or lift payouts, though the company offered few details about how it will use the 61.5 trillion won worth of cash and other equivalents held at the end of the first quarter.

"The question is what the company can offer to answer questions about where future growth will come from," said Park Jung-hoon, a fund manager at HDC Asset Management.

In the chip business, profits jumped 82 percent from a year earlier to 1.95 trillion won, in line with similarly strong results from rivals such as SK Hynix Inc thanks to solid demand from PC makers and tight supply. – Reuters