Samsung’s earnings disappoint

DOWNTREND::Lower-than-expected sales of the Galaxy S4 have raised concern over high-end smartphone market saturation and further earnings cuts by analysts


Sat, Jul 06, 2013 - Page 15

Samsung Electronics Co, the largest smartphone maker, faces further profit-outlook downgrades by analysts after posting earnings that missed estimates as sales of its flagship Galaxy S4 handset fell short of expectations.

Second-quarter operating income was about 9.5 trillion won (US$8.3 billion), Samsung said in preliminary earnings released yesterday. That missed the 10 trillion won average of 34 analyst estimates compiled by Bloomberg.

The S4 was released in April with a bigger screen and new software to help Samsung reclaim the top spot in the US market from Apple Inc’s iPhone and boost growth at its biggest source of earnings. At least 15 analysts cut estimates last month, triggering a 13 percent slump in the stock, amid concern the high-end smartphone market is nearing saturation and as competition hurts its television business, the world’s biggest.

“The market’s viewpoint needs to be lowered,” said Lee Jin-woo, a fund manager at Seoul-based KTB Asset Management Co, which oversees about US$3.5 billion in assets. “Having missed that 10 trillion won number proved that the recent concern over the high-end smartphone market saturation and margin squeeze was for real.”

Sales rose to about 57 trillion won in the June quarter from 47.6 trillion won a year earlier, the company said yesterday. That compares with the 58.6 trillion won average of 38 estimates.

The range for operating income in the period was 9.3 trillion won to 9.7 trillion won, Samsung said. The company did not provide net income figures or a breakdown of division earnings. Audited results are due later this month.

“It sharply missed the market expectation, and that worries me,” said Byun Han-joon, a Seoul-based analyst at KB Investment & Securities Co. “The market was initially concerned about the third and fourth-quarter results, but today’s [yesterday’s] news raises questions if the earnings are already in bad shape.”

Byun said smartphone shipments for the quarter totaled 74 million, or 2 million less than he expected.

Operating earnings from the TV-making unit probably slumped to 390 billion won in the second quarter, according to the median estimate of six analysts surveyed by Bloomberg News.

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 DisplaySearch said last month.

Last month, Samsung lost US$25.3 billion in market capitalization, more than the value of competitor Sony Corp, as analysts scaled back expectations for the S4 and cut profit estimates.

JPMorgan Chase & Co revised its sales estimate to 60 million units this year from 80 million, and Morgan Stanley lowered its forecast to 61 million units from 71 million, analysts led by Shawn Kim said. Samsung ships one of every four handsets in the world.

“Expectations have now been reset lower,” Mark Newman, an analyst at Sanford C Bernstein, said in an e-mailed statement.

“We believe smartphone units in the second quarter were slightly lower than our 77 million estimate,” said Newman, who expected Samsung sold 22 million units of the S4 in the period.