South Korea’s Samsung Electronics has joined a group of information technology giants
South Korea’s Samsung Electronics has joined a group of information technology giants to report earnings that beat industry expectations. Samsung, the world’s largest maker of television and liquid-crystal display panels and the second-largest maker of semiconductor chips and mobile phones, on Apr. 24 posted a first-quarter operating profit of $349 million, swinging back to the black from a loss of $550 million in the previous quarter.
“The results were a surprise,” says Brian Park, electronic analyst at Prudential Investment & Securities. “What’s assuring is that Samsung displayed its ability to squeeze its costs to improve profitability at a time of crisis.” The profit, nevertheless, is less than a fifth of $1.9 billion Samsung earned the year before. First-quarter sales also fell 13% to $21.3 billion from the previous quarter although it represented a 10% gain from the year before.
The star performer was its mobile-phone business. Rejecting analysts’ criticisms that Samsung is bent on increasing its market share at all costs, the Korean company said it earned $833 million on sales of $7.26 billion in its telecom business. The profit came as Samsung’s global market share topped 18% in the first three months, up from 16.4% the year before.
The profitability of the handset business caught virtually everybody by surprise. That’s because Samsung’s large profit margin of 11.5% for the quarter beat the 8.9% margin reported by Nokia (NOK), the unquestioned king in the handset industry. Samsung’s average selling price for its handsets-a key indicator for demand and profitability-rose 2% to $122 from the previous quarter, whereas Nokia’s average selling price fell to $86 from $94, though Nokia unit sales are more than double Samsung’s.
Cautious Forecast
But like executives from Apple (AAPL), IBM (IBM), Intel (INTC), and Google (GOOG), which all reported quarterly profits that beat Wall Street expectations, Samsung officials were cautious in forecasting for the rest of the year. “We can’t say with confidence that profitability will increase in the second quarter,” says Robert Yi, the vice-president heading Samsung’s investor relations team. “Also, we cannot rule out the possibility of a repeat of last year when we had a good first half and a disappointing second half.”
Things looked bad even in the first quarter for two of Samsung’s main businesses. Its chip and LCD panel divisions, traditionally the company’s money makers, kept bleeding red ink. With prices of memory chips remaining below manufacturing costs, Samsung lost 13¢ for every $1 of revenue in the first quarter from its chip business. Sharp price declines also meant it lost 8¢ for every dollar of LCD panel sales. In a thin-margin business of television, Samsung remained profitable, with its brand accounting for one in every five LCD TVs sold on the planet.
Industry officials say the worst appears to be over for LCD panels and the memory chips used in storing data for computers and mobile gadgets, but recovery would be slow.
