Samsung tips annual profit fall

Samsung. (Duncan Alfreds, Fin24)
Samsung. (Duncan Alfreds, Fin24)

Seoul - Global smartphone leader Samsung Electronics on Thursday confirmed expectations for its first annual profit decline since 2011, although a pickup in the fourth quarter hinted that earnings may have stabilised in the short term.

The South Korean tech giant lost market share for three consecutive quarters up to July-September, and analysts say the trend likely continued in the October-December period thanks to competition from Apple's new iPhones and cheaper Chinese rivals like Xiaomi.

Still, expectations of healthy memory chip demand and improvements in the mobile business on the back of new mid-to-low tier smartphones are buoying hopes that Samsung has at last staunched the bleeding in quarterly earnings.

"I think the company will show a turnaround," said CIMB analyst Lee Do-hoon, pointing to the positive outlook for Samsung's foundry and display panel businesses this year.

Samsung said its fourth-quarter operating profit is likely to be 5.2 trillion won ($4.74bn), beating a mean forecast of 5 trillion won from a Thomson Reuters I/B/E/S survey of 44 analysts.

Semiconductor division

The outlook means Samsung's 2014 profit will probably be 25 trillion won, the weakest in three years, although it marks a rebound from the third-quarter's 4.1 trillion won profit which was the firm's lowest quarterly result in more than three years. The company is expected to release its annual results around the end of January.

Samsung shares were trading 0.5% higher as of 03:10 GMT, compared with a 1.1% rise for the broader market.

"There were concerns about the mobile division but it looks like the won's recent weakness against the dollar and the Galaxy Note 4 impact helped," HMC Investment analyst Greg Roh said, referring to solid sales of Samsung's latest flagship phone.

"I expect profits to continue improving through at least the second quarter of 2015."

Several analysts tipped the semiconductor division to have earned more than the cash cow mobile business in October-December, buoyed by healthy demand for memory chips from personal computers and smartphones.

The company did not provide a breakdown of its earnings figures in Thursday's outlook, but a person with direct knowledge of the matter said that components sales picked up across the board, with healthy demand for memory chips and higher liquid crystal display panel prices.

The mobile division's contribution to Samsung's profit has slipped from about 68% at its peak in 2013 to about 44% in the third quarter, as its high-end offerings lost out to rivals.

Emerging markets

Meanwhile buyers in booming emerging markets like China have opted for cheaper devices rather than Samsung's flagship Galaxy series.

The mobile division's fourth-quarter profit improved slightly from the previous quarter due to a pickup in sales of premium products like the Galaxy Note 4 and lower marketing costs, the person with knowledge of the matter said, requesting anonymity because they were not authorised to speak publicly. But overall smartphone shipments fell, the person added.

Analysts say the company's new focus on mid-to-low tier smartphones will squeeze margins and cap profits, offsetting the benefits of the expected increase in sales.

"It'd be hard to expect a sharp pickup in earnings from the mobile division in the absence of a hit product," Korea Investment Trust Management Baik Jae-yer said.

ZAR/USD
16.75
(+0.98)
ZAR/GBP
21.65
(+0.57)
ZAR/EUR
19.64
(+1.16)
ZAR/AUD
12.00
(+0.71)
ZAR/JPY
0.16
(+0.78)
Gold
1884.30
(-0.60)
Silver
23.22
(-4.10)
Platinum
888.01
(+0.90)
Brent Crude
41.31
(-3.06)
Palladium
2297.00
(+0.06)
All Share
54264.96
(-0.44)
Top 40
50042.44
(-0.55)
Financial 15
10071.85
(+0.68)
Industrial 25
73187.40
(-0.23)
Resource 10
53383.39
(-1.24)
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Do you think it was a good idea for the government to approach the IMF for a $4.3 billion loan to fight Covid-19?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes. We need the money.
11% - 1399 votes
It depends on how the funds are used.
73% - 9038 votes
No. We should have gotten the loan elsewhere.
16% - 1992 votes
Vote