Samsung hits record profits…but warns of falling smartphone sales

26/07/2013

Samsung has reported another record quarterly profit, despite fears of falling demand for high end smartphones.

The South Korean tech giant, the world's largest technology firm by revenue, said its April-June profit after tax surged 49.7% year-on-year to 7.77 trillion won (£4.49bn).

Samsung attributed much of the increase to strong sales of its flagship Galaxy S smartphones and higher chip prices.

Second-quarter operating profit surged 47.5% on-year to 9.53 trn won (£5.56bn) in the same period as sales grew 20.7% on-year to 57.46 trn won (£33.56bn).

"Entering into a typically strong season for the IT industry, we expect earnings to continue to increase," Robert Yi, senior vice president, said.

But he warned: "We cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphone and other set products."

Falling share price

However, Samsung's share price has been falling - wiping about £20bn off the firm's value - since late April when the flagship Galaxy S4 hit stores, as sales have not been as high as hoped.

That is despite the company spending billions on a global marketing campaign that has squeezed margins. Samsung's share price fell 0.91% on Friday at the close in Seoul.

Growing competition


Samsung did not reveal smartphone shipments but it is thought to have sold about 75 million in the past quarter, some 760,000 a day, including around 20 million Galaxy S4s.

But while that helped Samsung maintain its status as the world's largest handset maker, the figure is only slightly up from the estimated 70 million shifted in the previous three months.

Apple sold 31.2 million iPhones in April-June - a record for the quarter - compared with 37.4 million in the previous three months, according to research firm Strategy Analytics.

However, Apple's fiscal third-quarter results on Tuesday showed net profit plunged 22% year-on-year.

Samsung, Nokia Corp and HTC Corp are launching more affordable devices to diversify their product line-ups, although analysts have warned that such a move could hit their profit margins in the longer term.

ABI Research said Apple's global smartphone share was down to 13.1% from 16.6% a year ago - its lowest level since Q3 2009 - despite the market growing 52% in the same period.

Advertisers should no longer view Apple as premium and Android as low end”

Commenting on Samsung’s results, Gareth Davies, Co-Founder and CEO of Adbrain said: “Samsung is the pioneering force behind the success of Android, and today’s news marks a tipping point for advertisers. While the tech giant failed to meet its ambitious forecasts, this is no sign that Samsung is failing – it remains the world’s largest smartphone manufacturer and operating profits are higher than ever.”

“Samsung is helping push the curve in the adoption of Android devices, particularly in emerging markets. It is driving technology innovations through its high end smartphones and building products that consumers love.”

“Advertisers should no longer view Apple as ‘premium’ and Android as ‘low end’. Android is becoming a higher value operating system and a more powerful way to reach consumers - not least due to the increased number of ad impressions and inventory available. As Samsung continues to expand its multi-screen strategy, and as it continues to develop products which integrate payments and loyalty into its devices, it will only continue to get closer to consumers.

Advertisers need to understand this and realise the link between multi-screen technology - from how people are using mobile to PCs - to deploy more efficient and targeted campaigns to consumers.”

‘Growth lies in emerging regions’

Markellos Diorinos, Head of Engagement Management, Upstream, added: “Companies are always criticised when they don’t meet their forecasts, even if they achieve record profits.

However, the fact that Samsung’s mobile division is down 3 per cent quarter on quarter in a growing market is quite significant. Although Samsung has predicted slower growth for its smartphone shipments in Q3, this should not be seen as a predicator of its future success. In fact, it is still in good position to bolster its market share by making focussing more on its devices that cater to emerging markets – where Samsung is currently the brand of choice.

“Samsung should and will continue to invest in its high-end phones, but the potential of its lower end devices needs to be realised. The fact that Samsung offers consumers a diverse product range across a spectrum of price points, means that consumers in emerging regions can afford to buy Samsung phones and share in its brand experience. This is where the real growth in the market lies and also where Samsung is tipped for success.”

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