BackSamsung posts smallest profit since 2011 on stalling smartphones
Net income, excluding minority interests, fell to $4 billion in the three months ended September
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Seoul: Samsung Electronics Co. Ltd posted the smallest quarterly earnings in more than two years as profit margins are squeezed by competition from Apple Inc.’s new iPhones and cheaper Chinese devices.
Net income, excluding minority interests, fell to 4.14 trillion won ($4 billion) in the three months ended September, the Suwon, South Korea-based company said in a filing on Wednesday. That is the lowest profit since the fourth quarter of 2011, and compares with the 4.27 trillion-won average of 19 analyst estimates compiled by Bloomberg.
Samsung faces the strongest challenge yet to its reign as the world’s biggest smartphone maker with the iPhone 6 models winning customers in the large-screen market and Xiaomi Corp. and Lenovo Group Ltd attracting budget buyers in China. The squeeze is hurting Samsung’s other businesses, curbing earnings at its display and processor chip divisions.
“Conditions in the China market, the main culprit behind the disappointing earnings, will continue to remain uneasy," Lee Min Hee, a Seoul-based analyst at I’M Securities Co., said before the earnings release. “The combined market share of the local smartphone makers in China is expected to have reached a record 90% in September."
Shares of Samsung rose 3.6% to 1,130,000 won in Seoul trading on Wednesday. The stock has fallen 18% this year after dropping 9.9% in 2013.
The earnings slump 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 chaebol, or family-run conglomerate.
Mobile slumps
Operating profit at the mobile unit, the biggest contributor to earnings since 2011, slumped to 1.75 trillion won from a record 6.7 trillion won a year earlier.
Samsung introduced two new Note devices with larger displays last month as it tried to blunt the impact of the new iPhone 6 and iPhone 6 Plus that debuted on 19 September.
Profit margins on smartphones are falling as competition pushes down the average selling price and Samsung boosts marketing spending to rekindle growth.
The company is estimated to have shipped 76 million smartphones globally in the third quarter, compared with 75 million units sold in the previous quarter, according to Woori Investment and Securities Co.’s 7 October report. Samsung lost its top spot in China smartphone sales to Xiaomi, according to research firms.
“Considering an ongoing structural change in China, including subsidy cuts, it looks daunting for Samsung to see a strong rebound in smartphone market share there," said Lee at I’M Investment and Securities Co.
Chip demand
Profit at Samsung’s chip unit, which supplies its own smartphones and 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 programmes simultaneously, while NAND memory is needed in smartphones and tablet computers for functions from playing videos and multitasking to storing books and photographs. Bloomberg
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