Samsung Counts on Wraparound Screens to Fend Off Apple

Samsung Electronics Co.
Customers look at Samsung Electronics Co. Galaxy smartphones at the company's d'light store in Seoul, South Korea. Profit margins on smartphones are falling as competition pushes down the average selling price and Samsung boosts marketing spending to rekindle growth. Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co. pioneered the large-screen smartphone to conquer the global market. Now it’s counting on wraparound screens to stay ahead.

The displays, which allow users to read messages and news from an angle, will be used on more products next year to distinguish them from rival devices, Suwon, South Korea-based Samsung said today. Wraparound screens made their debut last month with Samsung’s Galaxy Note Edge.

Samsung is searching for ways to revive earnings after posting its smallest quarterly net income in almost three years as its squeezed between Apple Inc.’s new large-screen iPhones and Chinese vendors including Xiaomi Corp. The company’s share of the global smartphone market is shrinking as earnings plunge from consumer electronics and displays.

“If Samsung expands the adoption of the display to its new flagship Galaxy S model next year, its mobile business may turn for the better,” said Lee Do Hoon, an analyst at CIMB Group Holdings Bhd in Seoul. “Samsung may come up with a phone in mass volume using flexible displays and that will help it stand out from other rivals, even from Apple.”

Samsung will also use more metal casings for its phones, the company said today, a type of cover used by most of its high-end competitors. The company uses plastic bodies on some of its high-end Galaxy S devices.

Shares Surge

Shares of Samsung surged 4.5 percent to 1,181,000 won at the close of trade in Seoul, the biggest gain in 14 months, after the company said it will announce a shareholder return policy in January.

That sparked speculation it may boost dividends after a slump in its shares, with the stock 14 percent this year after a 9.9 percent decline in 2013.

“Samsung was mainly focused on capital expenditure in the past quarters but after the call today, I could sense some changes made in their stance on the dividend policy,” said Greg Roh, a Seoul-based analyst at HMC Investment Securities Co. “That is sending a positive spirit in the market.”

Net income, excluding minority interests, fell 49 percent to 4.14 trillion won ($4 billion) in the three months ended September, Samsung said today. That’s the lowest profit since the fourth quarter of 2011.

Samsung “cautiously expects” an increase in fourth-quarter profit on seasonal demand for TVs, with flat-panel TV shipments forecast to rise 40 percent, and growth at the chip division, the company said in an e-mailed statement.

Margins Squeezed

At the mobile unit, which had been the biggest contributor to earnings since 2011, operating income slumped to 1.75 trillion won from a record 6.7 trillion won a year earlier.

“In terms of the profitability of the high end handsets, it may not be as easy as before to maintain high margins,” Kim Hyun Joon, senior vice president of strategic planning at Samsung’s mobile division, said today. “We will continue to differentiate our products in order to secure a premium in the market.”

While Samsung remains the biggest smartphone maker in the world, that lead is shrinking. The company had 24.7 percent of shipments last quarter, down from 35 percent a year earlier, according to data release by Strategy Analytics today. Apple is in second place with 12.3 percent while Xiaomi’s share more than doubled to 5.6 percent to take third place.

Chip Demand

Apple’s iPhone 6 and iPhone 6 Plus made their global debut on Sept. 19. The company sold 10 million of the devices during the first weekend of sales.

The slump in the smartphone unit comes as Chairman Lee Kun Hee recuperates from a heart attack in May and as his family prepares to hold initial public offerings for other parts of Samsung Group, South Korea’s largest family-run conglomerate.

Samsung shipped 102 million mobile phones in the quarter, Senior Vice President Robert Yi said on a conference call today.

Profit at Samsung’s chip unit, which supplies its own smartphones and those of competitors including Apple, was 2.26 trillion won.

Even with slowing growth in sales of tablet computers, continued demand for personal computers and servers globally drove sales of Samsung’s memory chips.

“PC demand was fairly good. Chip earnings will improve in the fourth quarter, largely on memory chips,” said Kim Sung In, a Seoul-based analyst at Kiwoom Securities Co. “Apple’s bigger iPhones partly drove Samsung’s NAND flash chip sales, while it also receives a premium for its most advanced DRAM chips.”

DRAM chips are used in PCs to help run multiple programs simultaneously, while NAND memory is needed in smartphones and tablet computers for functions from playing videos and multitasking to storing books and photographs.

Samsung will start construction of a $15 billion chip plant in Gyeonggi province, south of Seoul, in the first half of next year, with operations due to begin in 2017.

Profit at Samsung’s consumer-electronics division, which oversees the TV and home-appliance businesses, dropped to 50 billion won in the quarter on falling prices and competition. The display unit posted an operating profit of 60 billion won.

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