Samsung Drops on $2.8 Billion Won Profit-Cut Prediction

Samsung Electronics Co. (005930) fell to a two-month low in Seoul trading after forecasting a slowdown in smartphone demand and predicting that a stronger currency may cut operating profit by 3 trillion won ($2.8 billion) this year.

The world’s largest maker of mobile phones, TVs and computer-memory chips dropped 2.5 percent after stoking concerns about the smartphone market triggered by an Apple Inc. share plunge yesterday. The forecast also overshadowed a better-than- expected 76 percent jump in quarterly net income.

“Fourth-quarter results were good, but the problem now is what lies ahead,” said Kim Hyung Sik, a Seoul-based analyst with Taurus Investment Securities. “The high-end smartphone market has largely become saturated, while the fast Chinese growth in the lower segment will make it difficult for anyone to see strong profit growth there.”

Samsung and Apple (AAPL), which together make more than half the world’s smartphones, face slower growth in developed nations as years of surging sales have limited the number of new customers they can find. In China, the companies are batting with local phone-makers offering models costing as little as $100.

“Chinese vendors are growing fast,” Kim Hyun Joon, vice president at Samsung’s mobile communications business, said on a conference call today. Global market growth also will get “somewhat weaker” starting this year, he said.

Photographer: Woohae Cho/Bloomberg

A pedestrian walks past the entrance to Samsung Electronics Co.'s Samsung d'light showroom and store in Seoul, South Korea. Close

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Photographer: Woohae Cho/Bloomberg

A pedestrian walks past the entrance to Samsung Electronics Co.'s Samsung d'light showroom and store in Seoul, South Korea.

Stronger Won

The phone-maker also said capital spending this year will be similar to 2012 levels. Its shares closed at 1,417,000 won, the lowest since Nov. 30. Apple tumbled 12 percent in New York yesterday after posting the slowest profit growth since 2003.

Samsung posted fourth-quarter net income of 7.04 trillion won, surpassing the 6.8 trillion-won average of 31 analyst estimates compiled by Bloomberg. Sales climbed 19 percent to 56 trillion won. Operating profit surged 89 percent to 8.84 trillion won.

The stronger won cut operating profit by 360 billion won in the period, mainly by damping earnings from sales in China and Brazil. Korean carmakers Hyundai Motor Co. (005380) and Kia Motors Corp. (000270) posted fourth-quarter profit declines because of the won’s appreciation.

“The stronger won will obviously have a negative impact on profit, but that isn’t Samsung’s only concern,” Standard Chartered Plc analyst Sean Kim said. “Apple’s unimpressive earnings also indicate that the overall market situation is becoming more difficult.”

Global Phones

Samsung, which ships more than a quarter of all mobile phones worldwide, more than doubled operating profit to 5.44 trillion won. The company was the biggest seller of smartphones in China in the third quarter, according to IDC. Apple slipped to sixth behind four local suppliers including Lenovo Group Ltd., ZTE Corp. and Huawei Technologies Co., highlighting the U.S. company’s lack of a low-cost iPhone.

Globally, Samsung shipped 213 million smartphones last year, compared with 135.8 million for Apple and 35 million for Nokia Oyj (NOK1V), Strategy Analytics said today. The worldwide market grew 43 percent to 700 million.

“The question is how much more will Samsung continue boosting its market share as Apple staggers and competition from Chinese companies intensifies,” said Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd. in Seoul, which oversees about $5.5 billion of assets, including Samsung shares.

Apple Lawsuits

Samsung also supplies chips for the iPhone, and it’s in a global legal dispute with Apple concerning intellectual-property rights. The companies are using patents to try to force each other to change products or remove models from store shelves.

Samsung’s display division, which makes flat panels for TVs, made a fourth-quarter profit compared with a year-earlier loss. The semiconductor unit boosted operating profit 8.4 percent to 1.42 trillion won as sales of DRAM chips for servers and mobile devices offset a slump in prices for DRAM used in PCs caused by a global glut and slowing demand.

The Korean company may sell 59.7 million smartphones in the first quarter, double the tally for Cupertino, California-based Apple, Lee Sun Tae, a Seoul-based analyst at NH Investment & Securities, said before the earnings announcement. Samsung probably sold 63 million in the fourth quarter, according to Morgan Stanley. Apple shipped 47.8 million iPhones in the period, boosted by a new model and holiday-season demand. Samsung doesn’t provide shipment data.

In China, nationwide smartphone sales may rise 44 percent this year to 300 million, led by cheaper units, according to IDC. The Samsung 7568 Galaxy smartphone is available for as little as 1,299 yuan through China Mobile Ltd. (941) The cheapest iPhone on Apple’s China website, an 8-gigabyte iPhone 4, costs 3,088 yuan. The latest iPhone 5 starts at 5,288 yuan. Neither company provides sales data by region.

Samsung’s consumer-electronics unit, which makes TVs and home appliances, posted an operating profit of 740 billion won, compared with 540 billion won a year earlier, helped by high- margin models featuring 3-D functionality and LED back-lighting technology.

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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