Samsung Faces More Downgrades as Earnings Miss Estimates

July 05 (Bloomberg) -- Howard Lindzon, CEO and Co-Founder of Stocktwits, discusses the size of both Samsung and Apple, and the ability to move beyond the Smartphone. He speaks on Bloomberg Television’s “Bloomberg Surveillance.” (Source: Bloomberg)

Samsung Electronics Co. (005930), the largest smartphone maker, faces further profit-outlook downgrades by analysts after posting earnings that missed estimates as sales of its flagship Galaxy S4 handset fell short of expectations.

Operating income was about 9.5 trillion won ($8.3 billion) in the three months ended June, Suwon, South Korea-based Samsung said in preliminary earnings released today. That missed the 10 trillion-won average of 34 analyst estimates compiled by Bloomberg. Samsung stock fell the most in a month.

The S4 was released in April with a bigger screen and new software to help Samsung reclaim the top spot in the U.S. market from Apple Inc (AAPL) (AAPL).’s iPhone and boost growth at its biggest source of earnings. At least 15 analysts cut estimates in June, triggering a 13 percent slump in the stock, amid concern the high-end smartphone market is nearing saturation and as competition hurts its television business, the world’s biggest.

“The market’s viewpoint needs to be lowered,” said Lee Jin Woo, a fund manager at Seoul-based KTB Asset Management Co., which oversees about $3.5 billion in assets. “Having missed that 10 trillion-won number proved that the recent concern over the high-end smartphone market saturation and margin squeeze was for real.”

Photographer: SeongJoon Cho/Bloomberg

Mock models of Samsung Electronics Co. Galaxy S4 smartphones are displayed at the Samsung d'light store in Seoul, South Korea. Close

Mock models of Samsung Electronics Co. Galaxy S4 smartphones are displayed at the... Read More

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Photographer: SeongJoon Cho/Bloomberg

Mock models of Samsung Electronics Co. Galaxy S4 smartphones are displayed at the Samsung d'light store in Seoul, South Korea.

Shares (005930) of Samsung, which accounts for 18 percent of the benchmark Kospi index, fell 3.8 percent to 1,267,000 won as of the close of trade in Seoul. The stock has dropped 17 percent this year, compared with an 8.2 percent decline in the Kospi.

‘Sharply Missed’

Sales rose to about 57 trillion won in the June quarter from 47.6 trillion won a year earlier, the company said today. That compares with the 58.6 trillion-won average of 38 estimates.

The range for operating income in the period was 9.3 trillion won to 9.7 trillion won, Samsung said. The company didn’t provide net income figures or a breakdown of division earnings. Audited results are due later this month.

“It sharply missed the market expectation, and that worries me,” said Byun Han Joon, a Seoul-based analyst at KB Investment & Securities Co. “The market was initially concerned about the third- and fourth-quarter results, but today’s news raises questions if the earnings are already in bad shape.”

Byun said smartphone shipments for the quarter totaled 74 million, or 2 million less than he expected.

Operating earnings from the TV-making unit probably slumped to 390 billion won in the June quarter, according to the median estimate of six analysts surveyed by Bloomberg News.

Photographer: Woohae Cho/Bloomberg

A woman uses a Samsung Electronics Co. smartphone at Gwanghwamun Square in Seoul. Close

A woman uses a Samsung Electronics Co. smartphone at Gwanghwamun Square in Seoul.

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Photographer: Woohae Cho/Bloomberg

A woman uses a Samsung Electronics Co. smartphone at Gwanghwamun Square in Seoul.

Shares Slump

Prices for TVs were slashed as manufacturers struggled to stay profitable amid stalling demand. Samsung has 27.9 percent of the flat-panel market by revenue, researcher Display Search said in June.

Last month, Samsung lost $25.3 billion in market capitalization, more than the value of competitor Sony Corp. (6758), as analysts scaled back expectations for the S4 and cut profit estimates.

JPMorgan Chase & Co. (JPM) revised its sales estimate to 60 million units this year from 80 million, and Morgan Stanley (MS) lowered its forecast to 61 million units from 71 million, analysts led by Shawn Kim said. Samsung ships one of every four handsets in the world.

“Expectations have now been reset lower,” Mark C. Newman, an analyst at Sanford C. Bernstein, said in an e-mailed statement today. “We believe smartphone units in the second quarter were slightly lower than our 77 million estimate,” said Newman, who expected Samsung sold 22 million units of the S4 in the period.

Cheaper Devices

Operating earnings at the telecommunications unit probably rose to 6.9 trillion won in the quarter, according to the Bloomberg News survey.

In the absence of a new handset from Apple so far this year, Samsung is counting on the S4 to attract high-end shoppers as it also expands its range of cheaper devices. It sold 10 million units of its flagship within the first month -- about half the time it took the S3 to reach that mark. The new phone features a 5-inch screen and 13-megapixel camera.

“I had expected Samsung’s profit to be sustained due to its multiple products across all price points in smartphones,” said Lee Seung Woo, a Seoul-based analyst at IBK Securities Co. “The latest results sharply missed the consensus, and I may have to revise the third-quarter profit forecast.”

‘Galaxy Fatigue’

Scaled-down versions of the S4 and other models are being released to protect market share from Chinese rivals selling smartphones for $100. The company also plans to release more high-end models this year, including a device using the Tizen operating system and the Galaxy Note 3.

“Apple is suffering from iPhone fatigue, while Samsung is suffering from Galaxy fatigue,” Neil Mawston, executive director of Strategy Analytics, said in an e-mail before the release.

Profit at the semiconductor division probably rose 74 percent to 1.8 trillion won, according to the Bloomberg News survey, as limited chip supply and increasing demand for mobile semiconductors pushes up prices.

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, probably had an operating profit of 1.1 trillion won, according to the Bloomberg News survey. Sales at the division, which supplies its own handsets and tablet computers, probably fell to 7.91 trillion won.

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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