Samsung released its 3Q12 earnings details before market opened on October 26th. Apple reported earnings after the market close on October 25th. Apple’s earnings were much of a disappointment for investors. Samsung and Apple are bitter rivals in the smartphone wars. Apple’s flagship phone, the iPhone 5, now competes with Samsung’s main phone, the galaxy s3.
Samsung Breakdown:
Headline sales revenue and operating profit (W8.1 trillion) were pre-announced, thus no surprises.
Smartphone strength of 58 million (+21% QoQ) units was remarkable, driving most of the earnings upside. The smartphone mix improved to 54%, with the richer mix driving ASP up 14% QoQ. Additionally, strong sales of high-end smartphones such as Galaxy S3 drove sharp improvement in OLED profitability. The details also confirmed the turnaround of the NAND cycle as the growth in global smartphones and other mobile devices continues to drive sales of NAND solution products.
Upgrades and Smartphone Sales:
In a research note issued today, Keon Han, an analyst at Credit Suisse analyst raised his forecasts for Samsung Electronics Co., Ltd.(ADR) (LON:BC94). He raised EPS guidance by 3% for 2012, and 1% for the fiscal year of 2013. He notes that Smartphone shipments of 58 mn, or 21% QoQ growth, was especially strong given the competitive pressure from AAPL’s iPhone 5 launch. Samsung’s Galaxy S3 sales came in strong at 20 million+ units, driving most of the earnings upside. Smartphone mix improved to 54%.
On the other hand, Morgan Stanley lowered its profit outlook due to higher marketing costs and competition for smartphones in 4Q12. They believe that handset business is likely to repeat another strong quarter, driven by the launch of new mass-market products such as LTE phones, Galaxy S3 Mini and Galaxy. Additionally, China’s market share is robust, Emerging markets penetration is higher and all flagship products are selling well, including Galaxy S3. This should allow IM (IT & Mobile)’s Operating margin to remain robust at around 18% in 4Q12.
They breakdown Samsung’s smartphone sales as follows; 1) strong sales of new flagship model Galaxy S3 – they also estimate more than 20mn shipments in the quarter. 2) stable Galaxy S2 and Note sales on lower pricing, and 3) the absence of competing high-end models such as the new iPhone. Morgan Stanley expects the new flagship Galaxy Note 2 and Galaxy S3 to lead to strong handset shipments along with higher blended ASP this quarter.
Analysis:
However, as the smartphone wars heat up both companies face margin pressure. For Samsung’s smartphone division, Morgan Stanley expects both operating and gross margins to decrease in the fourth quarter. Apple expects overall corporate gross margins to decline 4ppts Q/Q to 36% from the 40% just reported. Samsung has gross margins of around 37%, however, operating margins show the difference between the two. Apple has an operating margin of close to 30, so even if gross margin slips a few points, operating margins should be in the high 20s. Even with operating margins in the low-30s, Apple’s iPhone 5 is much more profitable than Samsung’s Galaxy S3, where operating margins are in the mid-teens range. Will both companies meet in the middle? Will Apple win, since it already is more profitable, and spends less R&D on revenue, as well? Only time will tell, but it appears that Apple has the upper hand for now.
