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Samsung shifts focus away from Galaxy S

26 July 2013, 10:32

Seoul - Samsung plans to plough a record pile of cash into its semiconductor and display panel businesses, hoping to reduce reliance on sales of high-end Galaxy smartphones that are poised to peak after two years of blistering growth.

Samsung Electronics, the world's largest smartphone maker, reported record profit for a sixth straight quarter on Friday. But the result still disappointed investors who expected Samsung to book even higher earnings after the Galaxy S4, its latest iteration of the flagship smartphone, was launched in April. The handset scored 10 million sales in the month after its launch.

Samsung's division that makes and sells handsets, smartphones and tablet computers has been the motive force behind the South Korea company's run of bumper profits, with Galaxy smartphone shipments jumping every quarter. In the three months ended 30 June, the division contributed two-thirds of the company's entire operating profit.

Samsung, which does not disclose its smartphone sales figures, is estimated by research firm IDC to have shipped 72.4 million smartphones in the April-June quarter, compared with Apple's 31.2 million iPhone sales.

Samsung's second quarter smartphone sales were double what it sold in the final quarter of 2011, an indication of how fast the company expanded its business and outpaced rivals.


But investors who once cheered the explosive sales growth now fret that consumer appetite for top-of-the-range smartphones is close to being sated. Cutting-edge features have lost some of their lustre as there is now a wide choice of new devices with equivalently fast processors, powerful cameras and crisp roomy displays.

Emerging markets remain a source of growth but the middle classes in such countries flock to cheaper smartphones that are less profitable for manufacturers such as Samsung and Apple. They also face additional competition from Chinese companies that specialise in affordable handsets.

Samsung said it expected a higher profit contribution from its components businesses in the future.

It plans record-high capital expenditure this year, which will help ramp up production of its mainstay memory chips and strengthen its expansion in the mobile processor market. Out of 24 trillion won ($21.6bn) of annual capital spending, it allocated 13 trillion won to the semiconductor business and 6.5 trillion won to its display panel business.

In the latest quarter, Samsung's display panel business posted a higher profit over a year earlier thanks to demand for advanced displays called Oled, primarily used in Galaxy smartphones.

Even as PC shipments fell, demand for tablet PCs and data servers propped up prices of memory chips accounting for larger semiconductor profit.

Cheaper models

In smartphones, Samsung is also facing a similar challenge to Apple in that consumers are increasingly buying its older less expensive models rather than the latest version.

IDC said discounted prices of the Galaxy SIII, a predecessor of the S4, renewed consumer interest during the second quarter and contributed to Samsung's shipment growth. Yet it also likely dragged on earnings from handsets.

Samsung said the average handset price will moderately decline in coming quarters as the proportion of mid-tier smartphone sales increase. It also released variations of the Galaxy series to offer cheaper handsets and fend off competition from Chinese rivals.

- AP


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