Samsung Mobile Sales Fall as Chinese Makers Lure Budget Buyers

Apr 29, 2014 3:58 am ET

April 29 (Bloomberg) -- Samsung Electronics Co., the largest smartphone maker, posted the lowest sales at its mobile- phone business in five quarters as Chinese producers gain in emerging markets with cheaper, feature-packed devices.

Revenue at the mobile division, the company’s biggest business, fell to 32.4 trillion won ($31 billion) in the three months ended March, the lowest since the quarter ended Dec. 31, 2012, Samsung said today. The Suwon, South Korea-based company’s share of the global smartphone market fell for the first time in four years, according to Strategy Analytics. The shares fell.

The sales decline comes as Samsung becomes more dependent on its mobile-phone business for earnings, which now accounts for 76 percent of operating income. Apple Inc. is boosting iPhone sales through China Mobile Ltd. to better compete with Samsung’s high-end Galaxy S series, while Huawei Technologies Co. and Xiaomi Corp. are packing features into smartphones costing about $100 to target budget customers.

“Samsung’s heavy reliance on mobile is rising, posing persistent concern to the market,” said Oh Sang Woo, an analyst at Leading Investment & Securities in Seoul. “The bigger-screen smartphone market is what Samsung pioneered and it enjoyed leadership in that segment, but the company now has to share that pie.”

Apple is said to be readying bigger-screen iPhones, a watch-like wearable device and a new Apple TV set-top box.

Shares Fall

Shares of Samsung fell 2 percent to 1,360,000 won in Seoul, wiping about $4 billion from its market value in its biggest decline in a month. The stock is little changed this year after dropping 9.9 percent in 2013, its first annual decline since 2008.

Samsung also reported divisional earnings today, with net income, excluding minority interests, rising 7.3 percent to 7.48 trillion won. That compares with the 6.75 trillion-won average of 19 analyst estimates compiled by Bloomberg.

Samsung’s share of global smartphone shipments in the first quarter fell to about 31 percent from 32 percent a year earlier, according to Strategy Analytics. Apple’s share fell to about 15 percent from almost 18 percent in the same period, while Huawei and Lenovo Group Ltd. each had about 4.7 percent. Xiaomi, which sells more phones in China than Apple, is expanding to 10 more countries, including India and Brazil, after starting sales in Singapore earlier this year.

“Samsung continues to face tough competition from Apple at the higher-end of the smartphone market and from Chinese brands like Huawei at the lower-end,” Neil Mawston, executive director of Strategy Analytics, said in a statement today.

S5 Freebies

The company started global sales of the marquee Galaxy S5 this month, with features including a 5.1-inch screen with a fingerprint reader, 16-megapixel camera, heart-rate sensor and water-resistant coating that can withstand 30 minutes at the bottom of a meter-deep (3-foot deep) pond.

To try and stand out from other producers, Samsung is offering more than $600 worth of incentives for the S5 as it tries to spark demand. S5 sales are expected to surpass those of the S4, the company said without providing details. Samsung shipped 63.5 million units of the S4 through February, according to the median of three analyst estimates.

First-quarter operating profit at the mobile unit was 6.43 trillion won. That is down 1.2 percent from a year earlier and compares with a record 6.7 trillion won in the quarter ended Sept. 30.

Display Loss

“The risk for Samsung’s mobile business is that its profit growth is expected to remain stagnant in the second quarter as the company may have to pour a sizable marketing expense into S5 to boost sales,” said Greg Roh, an analyst at HMC Investment Securities Co. in Seoul. “What matters now is how Samsung can defend the price fall of smartphones, rather than how many they sell.”

Samsung’s display division, which dominates the market for panels using organic light-emitting diodes, posted an operating loss of 80 billion won, compared with a profit of 770 billion won a year earlier, amid a slowdown in high-end phones.

Profit at Samsung’s chip unit, which supplies its own mobile phones and those of competitors including Apple, was 1.95 trillion won -- an 82 percent increase from a year earlier.

Samsung and Globalfoundries Inc. said April 17 that they agreed to team up in the made-to-order chip business, an alliance aimed at winning orders from Taiwan Semiconductor Manufacturing Co.

World Cup

Operating profit at Samsung’s TV and home-appliance business was 190 billion won in the quarter, down from 230 billion won a year earlier as demand fell in the U.S., the company said.

Samsung introduced a wider line-up of curved TVs using ultra high definition screens this year to combat weakening sales. Ultra-HD sets, which offer four times the picture resolution of conventional displays, have struggled to gain traction because of a lack of content for the format and higher prices.

“Orders for display panels that are used for premium smartphones and TVs are expected to increase, as new mobile devices are rolled out into the market and as consumers look forward to the upcoming World Cup in Brazil,” Samsung said.

--With assistance from Seonjin Cha in Seoul.