Smartphones to lift Samsung to record $5 billion profit

Reuters News
Posted: Apr 26, 2012 2:24 PM
Smartphones to lift Samsung to record $5 billion profit

By Miyoung Kim

SEOUL (Reuters) - Samsung Electronics Co, the world's top technology firm by revenue, will report record quarterly operating profit of around $5 billion later on Friday on soaring sales of its Galaxy smartphones and as South Korean firms outmuscle Japanese rivals in TVs and memory chips.

Samsung, whose $184 billion market value is worth around a dozen Sonys, is set to topple Nokia as the global handset leader after 14 years, and its Android-based Galaxy line-up will have outsold Apple's iPhone as it won users from Nokia, Blackberry maker Research In Motion, Motorola and others.

The South Korean firm, which last year sold close to one in every 5 smartphones worldwide, should build on that market leadership with the launch in London next week of a third generation of its flagship Galaxy S, backed by heavy marketing ahead of the summer Olympics. [ID:nL3E8FG3QA] The new Galaxy will be powered by Samsung's quad-core microprocessor, which it hopes to see used in handsets sold by Nokia, HTC and Motorola, as well as Apple, its biggest customer.

And, 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, said IDC analyst Wong Teck-Zhung in Beijing.

Samsung - which has deals with all three of China's big telecoms operators - already pushed out Nokia as China's top smartphone vendor in the fourth quarter, with a near-25 percent market share, and analysts expect that to have increased as Nokia slips further. "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.

China's smartphone growth has defied most forecasts, and South Korean smartphone chip maker SK hynix this week predicted smartphone sales in China could be 20-30 percent higher than originally expected, given the level of orders it has seen.

"Overall Chinese demand was very strong in the first quarter and will drive global smartphone shipments to over 700 million this year," Kim Ji-bum, SK hynix head of global marketing and sales, told analysts on Thursday.

Samsung, led by Chairman Lee Kun-hee, said earlier this month its quarterly operating profit will be 5.6-6.0 trillion won ($5.1 billion), close to double the year-ago quarter, and analysts predict handsets will bring in around two thirds of total profit.


Samsung is estimated to have sold some 90 million handsets, including 44 million smartphones, in January-March, beating Nokia's 83 million handsets, which included 12 million smartphones. Apple sold 35.1 million iPhones, which accounts for about half its revenue, in the March quarter. CLSA's Evans reckons each Galaxy S II sold generates about $135 of operating profit.

"The key will be how profitable Samsung's handset business was in the first quarter as they had strong sales with little marketing spend increase in the absence of major product releases," said Lee Sun-tae, an analyst at NH Investment & Securities, noting, however, that margins would come under pressure again as the new Galaxy launch will come with a hefty marketing budget.

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Analysts expect a near-20 percent operating margin from handsets thanks to strong sales of the Galaxy S II and the Note phone/tablet - Samsung's top-end model with a throwback stylus and 5.3-inch screen.

"But Samsung is reshuffling its product mix to drop feature phones and increase smartphone models. That'll limit the downside," added Lee.

Samsung's home market remains its most lucrative as South Koreans buy high-end models and the company has a near-70 percent market share. Its smartphone operating margin in South Korea is around 38 percent, estimates CLSA, close to Apple's and nearly double the margin for Samsung's overall mobile business.

Samsung competes with Sony and LG Electronics Inc in TVs, Toshiba and SK hynix in chips and LG Display in displays.

Shares in Samsung have climbed 27 percent so far this year - hitting a life high of 1.351 million won ($1,200) earlier this month - far outperforming the benchmark index's 7.6 percent gain.

($1 = 1141.2500 Korean won)

(Editing by Ian Geoghegan)