Samsung Posts Profit Decline Amid Battle With Apple

Samsung Electronics Co. (005930) posted its first profit decline in nine quarters as new Apple Inc. (AAPL) iPhones won over high-end handset buyers and models from cheaper Chinese producers lured budget customers.

Operating profit was 8.3 trillion won ($7.8 billion) in the three months ended December, the Suwon, South Korea-based company said in a statement today. That compares with profit of 9 trillion won a year earlier, according to data compiled by Bloomberg.

Sales of Samsung’s Galaxy S4 have slowed amid competition from the iPhone 5s and 5c, and Chinese makers selling handsets for as low as $100. The world’s biggest maker of smartphones and televisions is introducing new designs, including curved screens and bendable displays, to spark sales after ramping up spending on employee bonuses and Christmas shopping promotions.

“There isn’t a real driver in the first quarter, with not many new products lined up to show solid profit,” said Jae H. Lee, a Seoul-based analyst at Daiwa Securities Group Inc. “The one-time costs, such as bonus payouts, were bigger than what had been estimated.”

Samsung paid a special bonus of 700 billion won to workers in the quarter, Shawn Kim, a Seoul-based analyst at Morgan Stanley, said in a report yesterday.

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Bendable Screen

Samsung was expected to post operating profit of 10 trillion won, according to the average of 32 analyst estimates compiled by Bloomberg, with expectations falling about 5 percent in the past month as analysts scaled back high-end smartphone projections.

The profit decline was Samsung’s first since the third quarter of 2011.

Shares of Samsung fell 0.2 percent to 1,304,000 won at the close of trade in Seoul. Between Dec. 24 and Jan. 3, the stock dropped 9.6 percent, a slump that erased about $19 billion of market value, or more than the capitalization of smartphone competitors HTC Corp. (2498), LG Electronics Inc. (066570) and BlackBerry Ltd. combined.

Samsung, which is facing stalling demand for TVs, said today it will release its first set with a bendable screen later this year. Viewers can change the display from flat to curved by touching a button, it said in a statement.

The company is focusing on ultra high definition screens, which offer four times the resolution of conventional displays, and signing content partnerships with pay-TV operators, Hollywood studios and streaming services to spark demand.

Lowered Estimates

Fourth-quarter sales were about 59 trillion won, the company said today. That increase of 5.3 percent was the slowest since the third quarter of 2011 and compares with the 61.5 trillion-won average of 36 estimates.

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Shipments of Samsung Electronics Co.’s Galaxy S4, which hit shelves in April, fell to 13 million units in the fourth quarter from 17 million in the previous three months, Daewoo Securities Co. said in a Dec. 23 report. Close

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Shipments of Samsung Electronics Co.’s Galaxy S4, which hit shelves in April, fell to 13 million units in the fourth quarter from 17 million in the previous three months, Daewoo Securities Co. said in a Dec. 23 report.

Samsung didn’t provide net income or details of divisional earnings, with audited results due to be reported later this month.

Apple, which released new iPhones on Sept. 20, sold 9 million handsets in the first weekend. It shipped 33.8 million smartphones in the quarter ended Sept. 30, the Cupertino, California-based company said.

Samsung shipped 13 million units of its S4 in the fourth quarter, down from 17 million in the previous three months, Daewoo Securities Co. (006800) said in a Dec. 23 report.

Fourth-quarter operating profit at the mobile unit, the company’s biggest contributor to earnings, was 6.4 trillion won, according to the median estimate of six analysts surveyed by Bloomberg News. Sales rose 19 percent, according to the analyst survey.

China Mobile

Samsung shipped 91 million smartphones in the fourth quarter, up 4 percent from the previous quarter, according to an estimate by KB Investment & Securities Co. In the third quarter, it was estimated to have shipped 87.3 million devices.

“There’s still a lot of upside ahead,” Mark C. Newman, a Hong Kong-based analyst at Sanford C. Bernstein, told Bloomberg Television. “Samsung’s actually the only company in the world that is actually making money on low-end smartphones right now.”

The company faces new competition in China, the world’s largest handset market, after Apple last month struck a distribution deal with China Mobile Ltd. (941), the biggest carrier by users. Samsung is the top seller in China.

“The latest China Mobile-Apple deal, as well as upcoming bigger-sized iPhones, will start to intrude on Samsung’s product portfolio and could steal some of its share away,” Hong Sung Ho, a Seoul-based analyst at LIG Investment & Securities Co., said. “The smartphone market will get more heat this year, and that raises a concern.”

Falling Prices

Global industry smartphone shipments will more than double to 1.7 billion units by 2017, researcher IDC said in a Nov. 26 report. During the same period, the average selling price will fall to $265 from $337.

Samsung’s billionaire Chairman Lee Kun Hee last week urged workers to innovate and adopt new ways of thinking to move beyond their focus on hardware and maintain growth.

The company is expanding into wearable devices and introducing new smartphones, including models with a curved screen and a clamshell design. Last year, it released the Galaxy Gear smartwatch to challenge Sony Corp. and Google Inc. (GOOG) in wearables.

Samsung’s display division, which dominates the market for organic light-emitting diode screens used in its own smartphones and TV sets, probably had operating profit of 726 billion won in the fourth quarter, down 4 percent from a year earlier, according to the Bloomberg News survey.

Stalling Televisions

Operating profit at Samsung’s consumer-electronics division, which oversees the TV and home-appliance businesses, probably fell to 418 billion won from 700 billion won a year earlier, according to the analyst survey.

Global TV demand fell to 226.7 million units in 2013, down from 238.2 million units in 2012, according to IHS Inc. (IHS), a global research company based in Englewood, Colorado. In 2014, demand will rebound to 229 million units, it said.

Profit at Samsung’s chip division, which supplies its own handsets and those made by Apple, nearly doubled to 2.6 trillion won on sales of 11 trillion won, according to the Bloomberg News survey of analyst estimates.

A September fire at an SK Hynix Inc. (000660) factory in Wuxi, China, triggered a spike in chip prices, which remain near three-year highs.

The price of the benchmark DDR3 2-gigabit dynamic random-access memory chip reached $2.80 on Jan. 6, according to DRAMeXchange, Asia’s largest market for the components. That compares with $1.60 on Sept. 4, when the fire hit Hynix’s factory.

“The global, memory-chip industry will stage a stable profit growth in 2014 with the tight supply-demand condition, which is expected to offset any profit slowdown from its mobile business,” said Pak Yuak, a Seoul-based analyst at Meritz Securities Co.

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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