Samsung Electronics posted a near 40 percent fall in first quarter net profit Wednesday, missing analyst estimates despite a surge in memory chip demand that cushioned a slump in smartphone sales.
Facing increasing competition from arch rival Apple and smaller Chinese manufacturers, the world’s top handset maker reported a net profit of 4.6 trillion won ($4.3 billion) for the January-March period, down 38.9 percent from a year earlier.
It was the fourth straight quarterly decline in net profit and missed the 4.9 trillion-won average of 23 analyst estimates compiled by Bloomberg News.
Operating profit also fell 29.6 percent on-year to 6.0 trillion won, largely in line with the firm’s earlier forecast.
But in a sign that the South Korean electronics giant might be turning a corner, the operating profit was up 13.1 percent from the fourth quarter of last year.
The firm’s latest earnings still stood in stark contrast to Apple which this week reported a 33 percent surge in net profit to $13.6 billion in the first quarter thanks to blockbuster sales of the iPhone 6, especially in the Chinese market.
In its earnings statement, Samsung said it expected overall earnings to increase in the second quarter as premium smartphone sales enter “into full swing.”
– 99 million handsets sold –
The company shipped 99 million handsets globally in the first quarter — more than 80 percent of them smartphones, Robert Yi, Samsung’s head of investor relations, said in a conference call.
Handset shipments in the second quarter are expected to remain on the same level, he added.
Samsung is pinning its hopes on the sixth edition of its flagship high-end smartphone launched in April.
The Galaxy S6 and S6 Edge with a wraparound screen received rave reviews but Samsung cautioned competition would intensify in rapidly growing emerging markets.
“In 2015, continued growth is expected due to the growth of emerging smartphone markets such as China and India as well as the global expansion of the LTE business,” the earnings’ statement said.
“However, increased competition in the middle-to low-end market…may present challenges,” it said.
Recent media reports suggested initial sales of the Galaxy S6 and Edge had fallen short of expectations, but Park Jin-Young, vice head of communications at Samsung’s mobile unit, said both models were performing well.
“I think the S6 will become the best-selling model among the Galaxy S series,” Park said, adding that Samsung was struggling to meet bigger-than-expected demand for the Edge.
Operating profit of the firm’s key mobile unit dropped more than 57 percent from a year ago to 2.74 trillion won in January-March although it was up nearly 40 percent from the previous quarter.
– New strategy –
In an effort to see off smaller rivals nipping at its heels in emerging markets, Samsung slimmed down its line-up of low- and mid-end smartphones last year, and ramped up production of those that remained in a higher-volume, lower-price strategy.
Park said sales of low-end models like the Galaxy A and Galaxy E rose considerably in the first quarter, and added that the company would continue to “respond actively” to demand in emerging markets.
Meanwhile, operating profit of the semiconductor unit soared more than 50 percent on year to 2.93 trillion won — and was up 8.5 percent from the fourth quarter.
The firm said Wednesday it had invested 7.2 trillion won to build or expand production infrastructure in the first quarter alone, including 4.4 trillion won on semiconductor plants.
The weak euro and emerging market currencies could drag down overall demand in 2015, Samsung said, adding that currency moves had an 800 billion won impact on the first quarter.
Samsung suffered a dramatic slide in profits last year, hit by slowing demand in an increasingly saturated and competitive smartphone market that it had largely dominated since 2011.
The company struggled to fend off a double challenge from Apple in the high-end market and rising Chinese firms such as Lenovo and Xiaomi in the fast-growing mid and low-end markets.
Several market trackers had Apple and Samsung tied in global smartphone sales in the fourth quarter of 2014, while at least one suggested Apple had regained the throne it lost to Samsung.