Last updated: April 29, 2011 5:20 pm

Samsung braces for challenging quarter

Samsung Electronics, the world’s largest technology company by sales, on Friday reported a 30 per cent drop in first-quarter net profit amid stiff competition in mobile phones and flat-panel televisions.

The South Korean company, which makes the Galaxy smartphone and tablet range, cautioned that the industry could face shortages of some components in the aftermath of Japan’s devastating earthquake and tsunami in March.

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“The challenging business conditions will persist in the second quarter, affected by lingering worries over the global economy and tight competition in consumer electronics and mobile businesses.”

Samsung also said operating profit had dropped 33 per cent to Won2,949bn ($2.8bn) in the first quarter, the lowest in almost two years, while sales had risen 6.8 per cent to Won36,985bn.

Net profit fell 30 per cent to Won2,785bn, broadly in line with estimates unveiled this month.

But Robert Yi, head of investor relations, said Samsung expected higher demand for microchips and LCD panels in the second quarter and into the rest of the year.

Song Jong-ho, an analyst at Daewoo Securities, said: “Semiconductors will be the main driver of earnings in coming quarters, while momentum in the telecoms business will continue as its new models are likely to be well received.”

Analysts expect earnings to improve in coming quarters as chip prices recover and Samsung unveils a new line-up of smartphones and tablet PCs.

Samsung dominates the memory chip market with a 40 per cent share. Its semiconductor division reported a 17.9 per cent operating margin in the first quarter, as prices of memory chips – vital components in personal computers and mobile electronic devices – have been on the rise since the Japan quake disrupted supply chains.

The company’s mobile division also performed better than expected in the first quarter, boasting an operating profit margin of 13.5 per cent, the highest since early 2008.

Samsung has a 19.7 per cent share of the mobile phone market, behind Nokia, which has 31 per cent, according to Strategy Analytics.

Analysts expect Samsung to continue to gain market share in smartphones and tablets. Its Galaxy S smartphone has sold 14m units since its launch last May and a new version of its Galaxy tab is due to be unveiled in June.

But the tablet arena is increasingly competitive, with Sony the latest to reveal tablets this week.

Samsung is also embroiled in a legal battle with Apple, which lodged a patent suit against it last week. Samsung has countersued in Asia and Europe.

Samsung launched its latest Galaxy smartphone this week. The Galaxy Tab, which was released in October, has sold about 300,000 units a month. Shin Jong-kyun, head of Samsung’s mobile division, aims to sell five times that number with the upcoming version.

Separately, HTC, the Taiwanese smartphone maker, said it had sold nearly three times as many phones in the first quarter as it did a year ago. Revenue and pre-tax profit came in higher than expected, at T$104.2bn (US$3.64bn) and T$17bn, respectively.

HTC’s strong results highlight its continued strength in smartphones despite increasing competition from other Android phonemakers, and its ability to grasp new opportunities – it has been quick to come up with phones for the next-generation networks in the US and Europe.

It also shows how HTC, which recently overtook Nokia in market value, has transformed from a niche provider of high-end models to being a major player in the industry.

HTC said it expected phone shipments to further increase in the second quarter to 11m units, and saw little impact from the Japan earthquake and tsunami. It will also soon sell its first tablet, the Flyer, but the company declined to say how many of the devices it hopes to sell and at what price.

Additional reporting by Robin Kwong in Taipei

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