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Samsung profit slumps 40% as consumers switch to iPhones

April 29, 2015 11:49 AM
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(Bloomberg) -- Samsung Electronics Co.’s first-quarter profit slumped 40% as consumers switched to Apple Inc.’s larger iPhones and the rising South Korean won made its devices more expensive in overseas markets.

Net income, excluding minority interests, fell to 4.52 trillion won ($4.2 billion) in the three months ended March, the Suwon, South Korea-based company said in a filing Wednesday. That compares with the 4.9 trillion-won average of 23 estimates compiled by Bloomberg and is the fourth straight decline.

Samsung’s loss of its dominant position in smartphone sales to Apple and Chinese rivals is cutting profitability and forcing the company to lean more on the chip and display units as currency moves cut earnings by 800 billion won. Apple this week posted surging earnings with the South Korean company counting on winning back users with Galaxy S6 phones, which were released to positive reviews and strong demand that are said to have prompted an acceleration of curved-screen output.

“Globally, demand for smartphones has been increasingly polarized to either top-end or bottom-end devices,” Lee Jae Yun, an analyst at Yuanta Securities Korea Co., said before the earnings release. “Galaxy devices have been squeezed somewhere in between, at least until the S6 came out.”

Shares of Samsung rose 0.6% to 1,374,000 won as of 9:01 a.m. in Seoul. The stock has risen 3.6 % this year, compared with a 13% gain in the benchmark Kospi index.

Mobile Slumps

Operating profit at the mobile-phone unit slumped to 2.74 trillion won from 6.43 trillion won a year earlier. The company fell into a tie with Apple as the biggest seller of smartphones in the December quarter, according to data from Strategy Analytics Inc.

Samsung has projected record sales for the new high-end smartphones, which include the S6 Edge with a wraparound screen. Samsung will sell 46 million units of the S6 models this year, with the more-expensive curved model comprising half of shipments, according to estimates from Kevin Lee, an analyst at Korea Investment & Securities Co.

The phone is among the Samsung products featured in the new “Avengers: Age of Ultron” movie as part of a global partnership with Marvel Entertainment.

Demand for the curved screen prompted the company to accelerate production, people familiar with the matter have said. The company can make 5 million units a month, they said.

The S6 Edge with 64 gigabytes of memory costs the company $290.45, including materials and production, according to IHS. It retails for $799.99 at Verizon.

A comparable iPhone 6 Plus has a teardown cost of $240.05, it said.

Apple Surge

“In 2015, continued growth is expected due to the growth of emerging smartphone markets, such as China and India,” Samsung said in an e-mailed statement. “However, increased competition in the middle- to low-end market and a possible decrease in demand due to the impact of foreign exchange rates in specific regions may present challenges.”

Apple this week posted a 33% jump in profit in the quarter that ended in March, driven by strong demand for the larger iPhone 6 devices and sales growth in China. IPhone unit sales jumped 40% to 61.2 million, topping analysts’ average prediction for 58.1 million, based on data compiled by Bloomberg.

Samsung probably shipped 81 million smartphones globally in the quarter, according to Daewoo Securities Co.

New Orders

The company agreed in February to buy LoopPay Inc. to tackle Apple in the market for wireless payments in retail outlets.

Profit at Samsung’s semiconductor business, which makes both memory chips and application processors, was 2.93 trillion won, compared with 1.95 trillion won a year earlier.

Samsung, which previously relied on semiconductors from Qualcomm Inc. for its best-selling mobile devices, switched to its own processor and modem chips for the S6 lineup.

The company is also said to have won orders for the main processors in the next iPhone, winning back a customer previously lost to Taiwan Semiconductor Manufacturing Co.

The consumer-electronics division, which oversees TVs and home-appliances, posted a 140 billion-won loss in the quarter from a 190 billion-won profit a year earlier. Gains in the won made Samsung products more expensive in export markets, with the South Korean currency advancing 23% against the euro in the 12 months ended March.

Increasing sales of high-margin screens helped Samsung’s panel-making division return to operating profit of 520 billion won in the first quarter.

Samsung Display Co. is expanding sales of its organic light-emitting diode, or OLED, panels from Galaxy devices to Chinese device makers, including Lenovo Group Ltd.

Samsung Display, which is 85% owned by Samsung Electronics, is said to have created a standalone team of about 200 employees to work exclusively on Apple products.

Capital spending in 2015 will be similar to the year earlier, Samsung said.

 

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