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Print 27 comment(s) - last by TakinYourPoint.. on Jan 28 at 5:26 PM

Samsung is still the only phonemaker to approach Apple in terms of profitability

Apple, Inc. (AAPL) set perhaps too high a bar with years of gaudy growth, new products and record products.  Now, even as it earns an epic $13.1B USD, it saw shares hammered as a result of shrinking margins and questions of legacy.

For Apple's arch-rival Samsung Electronics Comp., Ltd. (KSC:005930), which just posted its earnings last night, the story was a bit of the same.  Samsung recorded a record profit of $6.54B USD (7.04T won), or almost precisely half of the profit Apple made for the quarter.  That profit marks a rise of 76 percent from a year ago, and narrowly bests analyst predictions of $6.39B USD (6.87T won).

It mustered record profitability, despite some bad news.  Margins "fell to 17.4% in the fourth quarter, down from the 18.8% marked in the previous quarter".  Additionally, Samsung saw cell-phone sales grow 58 percent, which might seem impressive were that not a fall from last year's eye-popping 82 percent growth.

Samsung raked in $51.12B USD (56.06T won) in total revenue, up 18 percent from a year before.  Revenue was roughly in line with the analyst prediction of 56.22T won.  The profit-driving telecom business accounted for 62 percent of the company's operating profit.

Samsung Galaxy S III
Samsung moved an estimated 60 million smartphones and set a profit record in Q4 2012.
[Image Source: Funny Tweek]

Analysts estimate that Samsung moved around 60 million smartphones worldwide for the quarter, up from 36.5 million smartphones a year ago.  The surge comes thanks to strong continued growth of the Galaxy brand of smartphones and mini-tablets.  Samsung maintained a narrow lead over Apple in sales (Apple moved 47.8m iPhones), despite the strong relief of pent-up demand brought by the release of the iPhone 5.

The most troubling news for Samsung was how a strengthening South Korean won might hurt Samsung's profitability in 2013.  Samsung estimates that up to 3T won ($2.79B USD) could be trimmed of its profits in 2013.  Exactly how much that hurts Samsung depends a lot on how much it continues to grow.

Korean Won
A strengthening won is bad news for Samsung. [Image Source: 
SeongJoon Cho/Bloomberg]

Shares fell to a two-month low on news of the dipping margins and currency issues.  But ultimately, traders may be spooked not only by these numbers, but also by the performance of Samsung's archrival Apple.  Comments Standard Chartered Plc analyst Sean Kim to Bloomberg, "The stronger won will obviously have a negative impact on profit, but that isn’t Samsung’s only concern.  Apple’s unimpressive earnings also indicate that the overall market situation is becoming more difficult."

In short, investors fear a weakening phone market and as a results are scrutinizing the market's top players (Samsung and Apple) more carefully.  Interestingly, the most positivity appears to be channeled towards Nokia Oyj. (HEX:NOK1V) who achieved profitability after 6 quarters of losses.  While Nokia moved only 4.4m Windows Phones -- or about 1/14th of Samsung's unit sales -- the small, lean company is attracting attention in the troubled market.

Still, it might be unwise to overlook Samsung.  The company has a very diverse business base, and finds ways to achieve profitability even in the most adverse of circumstances.  For example, in Q4 its semiconductor division leveraged higher prices on component DRAM for smartphones and servers to offset weak pricing on the PC front due to overproduction.

Sources: Samsung [PDF], FT [analyst estimates]



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RE: Analyists
By maugrimtr on 1/28/2013 10:39:35 AM , Rating: 2
Apple fanbois are going to have to start taking Economics and Finance lessons soon. Both companies are demonstrating a tougher market, i.e. saturation is hampering growth. Also, a saturated market cannot, by definition, show huge growth outside of there being above average obsolescence.

In other words, to keep massive growth alive, people need to start throwing away their old phones and buying new ones even though their old phones are already powerful enough to do everything they want. We're running into the same problem that led to PCs being a low margin hellhole - phones are becoming a commodity.

Another thing... You do know those iThings queues are wholly artificial, right? Apple is actually scaling back production orders for 2013 in the face of a lack of demand! It uses that minor "production delay" to provide the appearance of high demand so that it makes consumers desire it more (since they are drawn to popular products). Apple has done this since forever.


RE: Analyists
By TakinYourPoints on 1/28/2013 5:26:39 PM , Rating: 2
iPhones making up over half of smartphone sales in the US and having a 40% increase over last year's sales clearly points to a lack of demand. Outselling every Samsung Galaxy phone combined points to a lack of demand.

White is black and black is white.

This isn't about being a fanboy of anything, its just hard numbers. "Hoping" for a decline from Samsung or Apple or anyone is something I don't care about, unlike the fanboys here. Its all just trends and numbers, I don't see why they make you all so mad.


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