Samsung operating profit falls 4.3%

Samsung Electronics is expected to record an operating profit of 8.4 trillion won ($7.9 billion) in the first quarter, down 4.33 percent from a year ago, as the result of slow smartphone sales growth.

That is up 1.08 percent from the previous quarter.

According to a preliminary estimate released Tuesday, the first-quarter sales reached 53 trillion won, up 0.25 percent from a year earlier.

The estimate did not provide figures for each of its business divisions. These will be made public in the last week of April.

Analysts have shown mixed reactions about the first-quarter performance.

They said that the figures are mostly in line with the market consensus of 8.4 trillion to 8.5 trillion won but raised concerns about the high dependence on smartphones.

“We recently advised our big clients to sell Samsung Electronics stocks because most profit is coming from smartphones. Other than these, we don’t see any positive factors that can lift Samsung’s profit,” said a senior hedge fund manager based in Seoul, by telephone.

“Demand for TVs remains weak. The appliances market is heading towards an unfavorable season,” he added.

According to Samsung officials, the smartphone business is estimated to have reaped 6 trillion won in operating profit during the first quarter, accounting for 70 percent of the total.

Analysts expect the company will bounce back in the latter half of this year after going through another sluggish quarter between April and June.

“At current valuations, the market is assuming the mobile business will destroy value going forward,” said Mark Newman at Bernstein Research in Hong Kong, adding Samsung’s memory chip business stands out as a strong performer.

According to the research firm, Samsung’s display and consumer electronics results were weak due to seasonality.

“We estimate that foreign currency impact was still negative on Samsung’s overall operating profit.”

In a short-term strategy to boost profits, Samsung plans to promote its Galaxy S5 smartphone, which will go on sale globally from Friday.

But the Galaxy S5 made a weak start at home. Analysts are raising questions about whether Samsung’s aggressive pricing plan for the latest handset will fully pay off before Apple’s new mobiles will be introduced sometime in the second half of the year, officials said.

“Samsung has been consistent in putting competitive hardware specifications in flagship models. But its focus is now on pricing as budget phones are gaining popularity. That’s why Samsung plans to put a super-fast 64-bit processor in its next mobile item from next year, not this year,” said a Samsung official.

He said an upcoming Samsung phablet ― the Galaxy Note 4 ― will support a 32-bit processor, not a 64-bit processor.

“Looking ahead, we continue to believe that Samsung’s diversity of profit streams plus strength and scale in all price tiers of smartphones helps it to continue to generate strong profits going forward,” Newman said in a report to clients. By Kim Yoo-chul The korea times