* Earnings seen up 57 pct year-on-year to $8.9 billion
* Quarterly smartphone sales expected at 72-75 million
* Chips could offset slowing phone sales growth
By Miyoung Kim
SEOUL, July 5 Smartphone leader Samsung
Electronics Co Ltd is set to report a record $8.9
billion quarterly profit on Friday, even as growth in sales of
its blockbuster Galaxy series begins to wane and new rivals
emerge to eat away at its market share.
The Galaxy S, powered by Google's free Android
platform, propelled the South Korean firm into the top rank of
smartphone makers in 2012, overtaking Apple Inc whose
iPhone had set an industry standard five years earlier.
But the South Korean firm, which posted five consecutive
record quarterly profits until the first quarter of 2013, now
faces questions about how it will deal with narrowing margins as
rivals flood the market with cheaper, simpler smartphones.
"Earnings could improve further from here as Samsung could
cut prices of the S4 to boost overall shipments to a level that
offsets any decrease in selling prices," said Brian Park, an
analyst at Tong Yang Securities.
"But the bigger issue is that there's not much clarity about
its future product lineups, and smartphones are increasingly
commoditised ... It's inevitable that Samsung's stellar profit
growth will come to an end and stagnate starting from next
Shares in the $185 billion company have dropped 15 percent
since early June, hit by a series of brokerages downgrades. The
share price reflects concerns about handset margins, with its
mobile business generating 70 percent of the tech giant's total
Its share price woes equate to a fall in market value of 33
trillion won ($29 billion), almost equal to the combined market
capitalisation of Sony Corp and LG Electronics Inc
To be sure, Samsung is by far the world's top smartphone
maker with 33.1 percent of the market compared with Apple's 17.9
percent in the first quarter, according to research firm
Strategy Analytics. Its rich product portfolio spans both the
high and cheap-and-cheerful end of the market.
But competition is getting intense with Chinese
manufacturers such as Huawei Technologies Co Ltd and
ZTE Corp making ground in the popular mid- to
low-end market, especially in China, the world's biggest mobile
Underscoring the growing focus on cheaper devices, Nokia Oyj
, once the handset king, unveiled two stripped-down 3G
phones this week. They allow access to popular applications such
as Facebook and Twitter, and sell for just $68.
Mozilla also said this week that first smartphones running
on open-source software Firefox will be available through
Deutsche Telekom and Telefonica. Priced at less than $100, the
models are manufactured by TCL Communication and ZTE
and allow developers to easily create apps, as the software is
based on HTML-5.
Samsung, due to release its April-June earnings guidance on
Friday, likely increased quarterly operating profit to a record
10.16 trillion won ($8.9 billion), according to a survey of 43
analysts by Thomson Reuters I/B/E/S.
That would be up 57 percent from a year ago and 15 percent
higher than the previous quarter, reflecting the launch of its
flagship Galaxy S4 in late April.
But its earnings estimates have been cut by 3 percent over
the past 30 days, and analysts are warning that the days of
thumping record profits may be coming to an end.
Citi analyst Henry Kim estimates Samsung's telecom profit
margin would decline by 4 percent next year and 3 percent the
following year on high-end market saturation and increasing
sales of cheaper phones.
Samsung is widely expected to have sold between 72 million
and 75 million smartphones in the second quarter, including some
20 million Galaxy S4. That's only marginally better than
first-quarter smartphone sales of 69.4 million.
Solid recovery in memory chip prices is likely to offset the
easing pace of growth in telecoms business, analysts said.
Prices of dynamic random access memory (DRAM) chips, used
mainly in computers, have jumped nearly 90 percent so far this
year. NAND chips, which are used in mobile devices to store
data, are also widely expected to be in short supply.
Samsung is the world's top maker of televisions, handsets
and memory chips, competing with Sony and LG in televisions and
with Toshiba Corp and SK Hynix in memory