April 29, 2015 / 2:05 AM / 5 years ago

Samsung Elec's mobile margins not out of the woods

A hostess displays the new Samsung Galaxy S6 Edge smartphone during the Mobile World Congress in Barcelona March 2, 2015. REUTERS/Gustau Nacarino

SEOUL, April 29 (Reuters) - Samsung Electronics may have put a floor under its mobile margins, but skeptics say profits will undergo a new test with the latest flagship Galaxy smartphones, among the most costly the South Korean company has ever made.

Samsung’s mobile devices division, which accounted for nearly 60 percent of total profit last year, boosted its operating margin to 10.6 percent in January-to-March, according to the company’s final quarterly results released on Wednesday. That’s the highest in three quarters. Analysts say Samsung’s roll-out of new mid-range products with revamped designs in key markets such as India likely boosted sales.

Mobile earnings slumped 42 percent last year due to intense competition in both the top and low-end segments. Samsung was forced to dump unsold inventory at steep discounts, pushing quarterly margins into the single digits for the first time since 2010.

Investors hope the new flagship Galaxy S6 smartphones that went on sale earlier this month will help the company’s profits rebound from 2014. Samsung is expecting record shipments. In April-to-June, mobile margins may rise to 13.6 percent with the shipment of 22 million Galaxy S6 phones, IBK Securities analyst Lee Seung-woo estimated.

But some analysts say they need to see sales data before determining whether margins will extend their uptick. Difficulty in producing enough of the new S6 phones to keep up with demand could be a short-term constraint. Samsung would also need to contend with top-end rival Apple, which sold 61.2 million iPhones in the quarter ended March 28. “The second-quarter performance should be a bit better than the first, but I would need to see concrete sell-through data for the business before determining whether there will be a sustained earnings recovery,” said Hana Daetoo Securities analyst Nam Dae-jong, noting that recent share price weakness for Samsung hints of some investor caution.

Editing by Ryan Woo

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