(Repeats to fix formatting)
* Q1 op profit likely 8.4 tln won, down 4.3 pct y/y
* Guidance in line with market expectations
* Shrinking smartphone margins to pressure company
* Shares down 0.6 pct after guidance, vs 0.1 pct drop in
By Se Young Lee
SEOUL, April 8 Samsung Electronics Co Ltd
on Tuesday said it is on track to post its second
straight quarter of profit decline, as margins in the key
smartphone business come under growing pressure from cheaper
Samsung is counting on the fifth version of its flagship
Galaxy S smartphone, which goes on sale globally from Friday, to
right the ship and prove the firm's staying power as a high-end
But the Galaxy S5 has already got off to a weak start at
home, with its South Korean debut marred by a temporary ban on
mobile carriers selling handsets and criticism that it lacks
eye-catching new features.
Underscoring the challenges, Samsung priced the S5 about 10
percent cheaper than the S4 even though main rival Apple Inc
is not widely expected to update its line-up until
September. It also dialled back on marketing glitz to keep
Samsung estimated on Tuesday its January-March operating
profit fell by 4.3 percent to 8.4 trillion won ($7.96 billion),
slightly below an average forecast of 8.5 trillion won by 40
analysts polled by Thomson Reuters I/B/E/S.
The figure was better than 8.35 trillion won forecast by
StarMine's SmartEstimate, which gives greater weighting to more
Samsung estimated its first-quarter sales at 53 trillion
won, compared with a market forecast of 54.58 trillion won. Full
quarterly results are likely to be announced by April 25.
The firm gave no breakdown of mobile earnings but the unit
typically generates about 70 percent of total profit.
Analysts said the company's efforts to rein in component
costs and make products that appeal to a wider audience will be
crucial as Samsung braces for what could be its first annual
profit decline in three years.
"In some sense, Samsung has no way to prevent a decline in
its earnings without improving internal efficiencies," HMC
Investment and Securities analyst Greg Roh said.
Shares of Samsung, Asia's most valuable company with a
market capitalisation of around $200 billion, were flat in early
trade on Tuesday, giving up much of its gains from a day earlier
in the absence of guidance surprises.
The stock is nearly 12 percent off the record high hit in
January last year, weighed by worries over high-end market
saturation and competition from low-end phones made by the likes
of Huawei Technologies Co Ltd.
Such headwinds may increase pressure on the company to use
its cash holdings to boost languishing share prices.
The firm said in January that it would raise dividend
payouts after hiking them by 79 percent to a record 2.1 trillion
won last year. A stockpile of 54.5 trillion won in cash and
equivalents held at end-2013 suggests room for manoeuvre.
Warren Lau, an analyst at Maybank Kim Eng brokerage, said in
a report that as Samsung generated about $24 billion in free
cash flow each year, it could allocate $5.2 billion in funds to
repurchase shares and another $2.8 billion for dividends.
But the company's conservative management style means it has
shied away from big acquisitions for the most part, and
executives have not publicly commented on any buyback programme.
"High dividends give the impression that the company is no
longer growing, and the most important thing for technology
companies is growth; Samsung has repeated this message," said
IM Investment analyst Lee Min-hee ahead of Samsung's guidance.
"Given that fact, I don't think there will be a major share
buyback or a dramatic increase in dividend payout."
(Editing by Stephen Coates)