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Galaxy phones power Samsung to record profit

Samsung Electronics posted a record $5.2 billion quarterly profit as it shifted over 20,000 Galaxy smartphones an hour in January-March, outselling Apple's iPhone in a duel for the lucrative high end of the mobile industry.

business Updated: Apr 27, 2012 12:38 IST

Samsung Electronics <005930.KS> posted a record $5.2 billion quarterly profit as it shifted over 20,000 Galaxy smartphones an hour in January-March, outselling Apple's iPhone in a duel for the lucrative high end of the mobile industry.

Chairman Lee Kun-hee's South Korean group, whose $190 billion market value is 11 times that of Japanese rival Sony Corp <6758.T>, sold 93.5 million handsets in the first quarter - more than one in every four sold around the world - according to Strategy Analytics. That included 44.5 million smartphones, giving it a 30.6 percent share of the high-end market. Apple's sales of 35.1 million iPhones gave it a 24.1 percent share.

"Samsung and Apple are out-competing most major rivals and the smartphone market is at risk of becoming a two-horse race," said Neil Mawston, an analyst at Strategy Analytics.

The near duopoly in high-end smartphones is not expected to change much this year or next, according to Bernstein analysts, and Samsung will look to keep that momentum going next week with the launch in London of a third generation of the flagship Galaxy S, hoping to boost sales ahead of the summer Olympics, where the group is among the leading sponsors.

"The Galaxy S 3's specifications are expected to be sensational and it's already drawing strong interest from the market and consumers," said Brian Park, an analyst at Tong Yang Securities.

The new Galaxy will be powered by Samsung's quad-core microprocessor, which the company hopes to see used in handsets sold by Nokia , HTC <2498.TW> and Motorola , as well as Apple, its biggest customer for components.

"We anticipate very strong demand for the Galaxy S 3," Robert Yi, Samsung's senior vice president and head of investor relations, told analysts. "When there's strong demand in the market, we don't necessarily need to spend a lot of marketing dollars to promote sales."

While Apple said this week that iPhone 4S sales boosted its quarterly revenue in China five-fold, there are more Samsung handsets than Apple phones in the world's biggest mobile market. Samsung said it increased its China smartphone market share to just above its global average, suggesting it took more than 30 percent share of a market where, unlike Apple, it already has deals with all three big telecoms operators.

Samsung's quarterly handset division profits nearly tripled to 4.27 trillion won, accounting for 73 percent of total profit, and operating margins jumped to 18.4 percent from 12 percent in the preceding quarter on strong sales of the Galaxy S and the Note phone/tablet, the surprise consumer hit of recent months.

Mobile warning

In a sign that high-end smartphones are where the mobile action, and money, is, Foxconn International Holdings <2038.HK> warned of a deepening first-half loss on weak orders. While Taiwanese parent Foxconn Technology Group assembles iPads and iPhones, Foxconn mainly assembles handsets for Motorola, Sony and others.

Samsung, the world's top technology firm by revenue, has overtaken Nokia, the long-time global mobile phone leader, and is outmuscling Japanese rivals in TVs and memory chips.

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

January-March operating profit nearly doubled to 5.85 trillion won and was up from 5.3 trillion won in the previous quarter, sending Samsung shares up 2.9 percent to a record 1.38 million won.

Tong Yang's Park said Samsung's handset earnings growth may slow later this year, with the likely launch of Apple's iPhone 5, "but the recovery of chips and displays will more than offset potential drops, sustaining earnings momentum."

But the chips are down

Samsung competes with Sony and LG Electronics <066570.KS> in TVs, Toshiba <6502.T> and SK hynix <000660.KS> in chips and LG Display <034220.KS> in flat screens.

Profits from semiconductor sales more than halved to 760 billion won, hit by tumbling computer memory chip prices, while the TV and home appliance 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, such as 3D and organic light emitting display (OLED) sets. Sony, Panasonic <6752.T> and Sharp <6753.T> expect to have lost a combined $21 billion in the business year just ended.

Samsung will also merge its Samsung Display liquid crystal display (LCD) unit with its OLED production unit Samsung Mobile Display.

First Published: Apr 27, 2012 11:20 IST