Samsung posts second straight profit drop as smartphone demand stalls

Samsung, the world’s biggest maker of smartphones, posted its second straight decline in quarterly profit as stalling demand lowers prices for Galaxy devices and components.

Operating profit fell to 8.4 trillion Korean won in the three months ended March from 8.8tn won a year earlier, the company said in a statement on Tuesday. The result compares with the 8.3tn won average of 29 analyst estimates compiled by Bloomberg.

Sales of high-end products are slowing because of market saturation and the debuts of new Apple iPhones, curbing earnings at the world's biggest smartphone maker at the same time it focuses more on lower-priced devices. The marquee Galaxy S5 smartphone and an expanded range of tablet computers are being released to spark demand as competition from Chinese producers hits display-unit income.

"Samsung's smartphone sales strategy is changing to churning out a wider and varied product lineups with lower price tags, rather than placing its focus on one blockbuster model," Marcello Ahn, a Seoul-based analyst at Quad Investment Management, said before the earnings announcement. "Despite falling average selling price of smartphones due to slowing high-end demand, Samsung smartphones outsold second-tier laggards."

Sales were about 53tn won in the quarter, the company said. That compares with the 54tn won average of 33 estimates.

Samsung did not provide net income or details of divisional earnings with audited results due to be reported later this month.

In the December quarter, earnings fell 7.9 per cent from a year earlier.

First-quarter operating profit at the mobile unit, the company’s biggest business, was probably 5.9tn won on sales of 33tn won, according to the median estimates of six analysts surveyed by Bloomberg News. The unit’s profit has fallen from a record 6.7tn won in the third quarter of 2013.

Samsung unveiled the 5.1-inch Galaxy S5 smartphone with a fingerprint reader in February, and the device is due to be available outside South Korea starting April 11 as it seeks to fight back against the iPhone 5s and 5c released in September.

“The significance of S5 device has somewhat dropped compared to its predecessors,” Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities, said.

The company’s smartphone shipments reached 90 million units in the first quarter, according to Nomura Holdings estimates. In the fourth quarter of 2013, Samsung shipped 86m smartphones worldwide, research firm Strategy Analytics said January 27.

Samsung will release its next large-screen Note device in the second half of this year, Lee Young Hee, executive vice president of the mobile business, said in a January 6 interview. The newest Note may use a three-sided display so messages can be read from an angle.

The company’s grip on the large-screen market it pioneered with products such as the 5.7-inch Galaxy Note 3 faces new threats from other producers. Apple is developing new iPhone designs including bigger screens, a person familiar with the plans said last year.

Such a move may hurt Samsung’s earnings and market share, according to Nomura.

In January, Samsung announced its largest tablet, with a 12.2-inch screen, as it seeks to win more business customers with features that allow users to split the display into four windows running different applications.

Also, Samsung may book as much as US$290 million in charges related to its patent dispute with Apple, Seo Won Seok, an analyst at Korea Investment & Securities in Seoul, said in a March 28 report.

The display unit, which dominates the market for screens using organic light-emitting diodes, probably had operating profit of 100 billion won in the first quarter, down 87 per cent from a year earlier, according to the Bloomberg News survey.

Sales at the unit declined 13 per cent to 6.2tn won, according to the six analysts surveyed.