Samsung Earnings: Profit Rises Amid Competition With Apple

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Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) reported strong financial results for the second quarter of the current fiscal year due to the good sales performance of its smartphones. However, analysts in technology observed that earnings momentum of the company’s mobile devices are slowing down with contracting margins due to high marketing expenses.

Samsung Earnings: Profit Rises Amid Competition With Apple

The South Korean Electronics manufacturer posted KRW 57.5 trillion sales, an increase of 21% compared with its KRW 47.60 trillion sales in the same period in 2012. Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) said its net profit was KRW 7.7 trillion, up by 30% from KRW 5.19 trillion a year ago. Its operating income increased by 48% to KRW 9.53 trillion and its operating margin was 16.6%.

The IT and Mobile Communications unit of Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) generated the largest profit with KRW 35.54 trillion sales, an increase of 8% quarter-over-quarter.

Samsung Reports Robust Sales

Its Device Solutions Unit delivered KRW 17.6 trillion sales including KRW 8.68 trillion sales for semiconductor and KRW 8.18 trillion sales for display panel. Its Consumers Electronics unit achieved KRW 12.28 trillion sales. The South Korean electronics manufacturer is also the biggest supplier of memory chips, display panels and TVs worldwide.

According to analysts at BMO Capital Markets, mobile sales performance of Samsung Electronics Co Ltd (LON:BC94) (KSE;005930) outperformed their low estimate of KRW 34.6 trillion, and its operating profit at KRW trillion is a bit higher than their KRW 6.1 trillion estimate.

BMO Capital Markets analyst Tim Long and his fellow analysts noted that Samsung’s mobile operating margin declined sequentially. The management of the company explained that the operating margin was affected by increased spending in R&D, product launches, and retail/distribution expenses.

The analysts estimated that Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) shipped 105 million mobile devices including 74 million units of smartphone or 70% of handset shipments. They projected that Samsung’s ASP increased by 11% to $253 million due to improved smartphone mix. In addition, the analysts estimated that the company’s smartphone ASP rose by 5% to $340 million based on approximately 20 million units of the high ASP-Galaxy smartphones.

Furthermore, the analysts projected that Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) may experience slight growth in units with lower ASPs in the next quarter. The company is also expected to perform well in the component segment.

Samsung Concerned About Europe And Increased Competition

During the Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) earnings call, Kim Hyun-joon, vice president of mobile business said, “The smartphone market will likely continue to grow in the third quarter but there’s a chance that the pace of growth may slow as competition intensifies with new model releases.”

On the other hand, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s head of investor relations, Robert Yi said,  “Entering into a typically strong season for the IT industry, we expect earnings to continue to increase. However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products.”

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