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Phonemaker looks to Galaxy S5, Gear 2, and Note 4 to boost sales in Q2-Q4

Founded in 1969, the Samsung Electronics Comp., Ltd. (KRX:005935) (KRX:005930) is by far the largest company in South Korea with a market cap of $176.8B USD.  It also happens to be the world's top smartphone producer and second place in tablet sales.  So when it shows signs of trouble, it's a major concern for investors.

I. Weak Won, Bonus Play Role in Profit Slump

Such was the case early this month when Samsung delivered its earnings forecast, predicting the first dip in profit in two years.  (Samsung delivers its earnings report relatively late, so it offers an early unaudited estimation to give analysts a jump on their work.)

On Thursday Samsung put Q4 2013 officially in the books, and left more optimistic analysts cursing.  A survey by Thomson Reuters I/B/E/S of analysts taken earlier in January following Samsung's guidance release predicted a W10.3T (~$9.53B USD) operating profit, which would have set a record.  Dow Jones Newswires' analyst survey came in just slightly lower at W9.65T ($8.93B USD).

Korean Won stack
Korea's strengthening Won hurt Samsung's profit. [Image Source: Bloomberg]

Instead Samsung posted operating profit of just W8.31T ($7.69B USD), a substantial miss, even in the wake of the gloomy forecast.  Net profit (profit after taxes) was down roughly one trillion Won from the previous quarter, at W7.24T ($6.7B USD).  Revenue was up slightly, at a record W59.28T ($54.87B USD).

A strengthening South Korean Won (KRW) was partly to blame.  Low inflation pushed the value of the currency, meaning Samsung was getting less Won when it pulled in revenue from Europe and the U.S.

A display of gratitude and generosity towards the company's employees also impacted profit.  In honor of the twentieth anniversary of Chairman Lee Kun Hee unveiling a new vision for the company -- a vision that has driven it to unbelievable new heights -- Samsung gave a W800B ($741M USD) bonus to employees.

Samsung Group Chairman
Samsung Group chairman Lee Kun-Hee announced a new vision for the company 20 years ago.  To honor the transformative effects, Samsung gave employees a bonus this quarter.
[Image Source: AP]

For Samsung it was a mixed year: the company saw misses in Q2 2013 (and now Q4), but outperformed expectations in Q1 2013 and Q3 2013.

II. Some Gains

One traditionally weak unit -- the consumer electronics (CE) unit -- was actually a success story for the Korean OEM.  The category, which includes appliances such as refrigerators, dishwashers, and ranges, plus televisions soared.  Samsung reported a 90 percent increase in quarter-on-quarter (QoQ) TV revenue, which help drive profits for the unit up 88 percent.  The growth in the appliance market wasn't quite as explosive, but was respectable, as well.
Samsung Washing machine
Samsung's smart appliances may drive profits in years to come.

Samsung hopes to by the end of next year reach the top spot in the appliances market, which it currently has a 10.5 percent market share.  Samsung pulled in an estimated $12B USD in appliance revenue last year, compared to Whirlpool Corp.'s (WHR) $18B USD haul in 2012.  Samsung is currently the fastest growing appliance maker, and its leaning on that steady progress and higher-margin "smart" appliances to help steady the up-and-down television component of its CE business.  It wants CE to eventually be a key third pillar of profitability, similar to what semiconductors and mobile devices are today.

Samsung's IM (IT and Mobile) unit is where the mixed results start to pop up.

In the tablets space Samsung gained ground, selling nearly 12 million, units, up roughly 50 percent from the 7.9 million it moved in Q4 2012.  The results pushed Samsung's yearly tablet sales to 40 million, good enough for second-place behind arch-rival Apple, Inc. (AAPL).

The company plans to test the waters with a pair of 12.2 inch tablets, the NotePro (which includes a stylus) and the TabPro (which doesn't).  These tablets were unveiled a couple of weeks ago at the 2014 Consumer Electronics Show.

From there, though, most of the news was bad, mobile-wise.  Samsung indicates it overspent on mobile advertising, cutting into profit.  Major campaigns included a promotion with the world's top soccer stars in the wind up to the World Cup, plus a pricey sponsorship of the 2014 Winter Olympic Games in Sochi, Russia.

Senior Vice President Kim Hyunjoon is quoted by Reuters as saying:

We'll actively leverage global sports events such as the Sochi (Winter) Olympics and our retail channels... but we will try to raise the efficiency of our marketing spend and lower our overall mobile marketing budget to revenue this year compared with last year.

Samsung has been criticized for overspending on advertising.

III. Customers No Longer View GS4 as "The Next Big Thing"

Smartphone shipments did rise 4 percent in the fourth quarter, with 91 million devices shipped, according to KB Investment & Securities Comp. (KRX:105560).  But Samsung moved only 9 million of its top-margin flagship Galaxy S4 devices.  By contrast in Q4 2012 Samsung -- which does not release unit sales figures -- is estimated to have only sold 60 million smartphones, but still managed to move an estimated 15.2 million units of its then-flagship Galaxy S3 device.

Samsung Galaxy S IV

As Samsung tends to release its flagship phone earlier in the year it tends to see its sales peek during the summer and fall, only fall slightly in Sept.-Dec. window when Apple's new flagship device hits the market. 

The Galaxy S3 and Galaxy S4 followed very different sales arcs, despite similar announcement dates.  The Galaxy S4 was very fast out the gate and sold an average of 20 million units per quarter in Q2 and Q3.  But this quarter sales fell roughly in half, dropping well below the Galaxy S3 monthly sales rate at that point in the device's lifecycle.  Still the Galaxy S4 did ship more units during its launch year.  By the end of 2012 Samsung had sold roughly 39.9 million Galaxy S3s, by the end of 2013, Samsung had sold roughly 49.0 million Galaxy S4s.

Part of this difference in sales pace is likely due to Samsung rolling out devices faster in top sales regions like the U.S. and Europe, which used to trail the South Korean launch by healthy margins.  Overall, if there's one conclusion that can be drawn, it's that the Galaxy S4 has been a steady seller for Samsung, if a bit disappointing in growth and longevity.

Arch-rival Apple shipped 33.8 million iPhones, of which an estimated 20 million were iPhone 5Ss, the premium flagship variant.  Those numbers indicate that while the Galaxy Note 3 -- Samsung's popular larger-screen phablet device -- is competitive with Apple's iPhone 5C in terms of sales, that Apple's star device is outselling the Galaxy S4 2-to-1.

What makes this trend even more troubling is that Samsung's roughly 75 million sales of older smartphones (not the GS4 or Galaxy Note 3) could also easily erode from a second major competitive threat.  Samsung's budget sales are heavily driven by Chinese smartphone sales, a market in which Samsung has been dominant for some time now.

In China domestic phonemakers Lenovo Group, Ltd.'s (HKG: 0992) and Huawei Technology Comp., Ltd. (SHE:002502) are looking to chip away at Samsung's Chinese sales with models that sell for around $100 USD, unlocked.  Lenovo has been particularly effective, moving into third place in global smartphone sales in Q3 2013, behind Apple and Samsung.

Lee Young Hee, executive vice president of the company’s mobile business, tried to cheerr up analysts announcing that the Galaxy S5 was coming soon and would revive sales.  He commented:

We’ve been announcing our first flagship model in the first half of each year, around March and April, and we are still targeting for release around that time.  When we release our S5 device, you can also expect a Gear successor with more advanced functions, and the bulky design will also be improved.

It's no secret what the highlight of that device may be.  Not content to simply add a fingerprint scanner as Apple and other manufacturers have, Samsung is driving to possibly add a biometric Iris sensor unlock to its new device.  He told Bloomberg:

Many people are fanatical about iris recognition technology.  We are studying the possibility but can’t really say whether we will have it or not on the S5.

Samsung is also rumored to be using its flexible display technology to add a wrap-around three-sided display, which overlaps onto the edges of a smartphone or tablet.  The technology is expected to first appear in the Galxy Note 4.  Samsung has also filed patents that indicate it may launch an Android glasses wearable sometime later this year.

IV. Devices Unit Also Suffers

Locked in a complex technology war with Taiwan Semiconductor Manufacturing Comp., Ltd. (TPE:2330) (TSMC) and Intel Corp. (INTC), Samsung will spend deeply this year, with capital expenditures on pace to match 2013's record spending (W23.8T ($22B USD)).  Samsung plans to tape out 20 nm this year, and hopes to reach volume production next year. 

samsung die shrinks

[Image Source: Samsung]

It's a bit behind Intel, which is already on 14 nm volume production and TSMC, which is on volume production at the 20 nm node.  Thus, you could say Samsung is two years behind Intel and one year behind TSMC process wise.  But It's spending nearly twice as much as these foes, so it may be able to close that gap over the next few years.

In Q4 the Device Solutions (DS) unit saw a small drop in profit from Q3, despite a rise in SoC and DRAM/NAND revenue.  Despite mobile growth fueling more demand, supply eased in Q4 as SK Hynix Inc. (KRX:000660) ramped DRAM/NAND production back up following a major factory fire from earlier in the year.

If the IC (integrated circuit) side of the DS unit was mixed, the display unit was downright bad.  As mentioned, Samsung's sales of packaged TVs was up, but its sales of displays as components -- for everything from smartphones to TVs saw a 20 percent drop in revenue and 89 percent drop in profit from Q3 2013.  Sales of the pricey high end OLED displays slumped slightly, although there was an uptick in new OLED screen model sales.  Sales of LCD screens -- which constitute the bulk of Samsung production -- drove most of the slump.  The key issue there was oversupply.

All of Samsung's units remain profitable, but it looks to be in for a rocky Q1 2014, even by its own forecast.  Thus expect the company to earn a pass for the first quarter, but be keenly launched in Q2 2014 when its critical next-generation Galaxy S-series and next-generation Galaxy Gear debut.

Sources: Samsung, Bloomberg [1], [2], Reuters

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This article is over a month old, voting and posting comments is disabled

By Jim_Liquor on 1/24/2014 7:28:50 PM , Rating: 0
... the crApple iToys will stop being in style, and Nokia will take their spot. After all, Nokia has the best phone designs, battery and OS out there.

After crApple is dealt with, the fandriods with the fragmented mess of an OS and 6000000 phones that all underperform with octacores, will be next.... glorious times.

RE: soon...
By SilthDraeth on 1/24/2014 8:15:47 PM , Rating: 2
Did someone hire Tony Swash for Microsoft, and change his login?

RE: soon...
By Jim_Liquor on 1/24/2014 8:45:12 PM , Rating: 1
Sorry to report, I am not that mentally ill.

My point was is Apple is doomed worldwide for the reason its been the same crap for eons. And its has a closed APP STORE as well as it is expensive for the sole reason of people going LOOK WHAT I GOT!!!!

The Android stuff I harped on because as an I.T. Professional, I cannot talk most people through setting up an Android based phone for the reason even if they are the same OS, there are always differences in the execution by the hardware vendor.

Windows Phone fixes all of that. Its open enough not to be Apple crap machine... the Marketplace is controlled enough to not allow malware to get thru ... yet uniform enough to know that I can set up one across the globe unlike an Android advice.

Windows Phone is truly the best OS for a phone out there, with the absolute best hardware.

RE: soon...
By KoolAidMan1 on 1/24/2014 9:36:46 PM , Rating: 4
I've owned Lumias and liked them, but you're out of your mind.

WP also has a walled garden app store. The difference is that WP has the worst app market out there and a far inferior app selection. iOS blows it away there, it isn't close. Best hardware is also debatable since it has nothing with the performance of an iPhone or high end Android. The UI is great but the hardware and apps are seriously lacking. I gave it a chance for a years and finally gave up on it catching up.

WP is basically the worst of both worlds, worst apps in a walled garden. It's too bad because it does things like UI very well.

RE: soon...
By Jim_Liquor on 1/25/2014 7:43:53 AM , Rating: 3
App selection yet again from a iTard / Fandroid ... sigh

MS now has all the 'must have' apps that you idiots scream about day and night. Even your cherished Instagram. That argument no longer works... however I will admit it is lacking in the 50000 fart apps that Apple has.

The fact is, its a great OS with great hardware that kicks the crap outta anything Apple does and most of what Android does with its 600000 models.

You lose.

RE: soon...
By KoolAidMan1 on 1/25/2014 8:22:21 AM , Rating: 2
WP doesn't even get major bank apps like Citibank, let alone utilities, games, and social apps that you're going to try and say don't matter.

You're in denial if you don't think there are major holes in WP's app library. It is a big reason I stopped using it.

RE: soon...
By Mitch101 on 1/25/2014 1:24:02 PM , Rating: 2
RE: soon...
By Mitch101 on 1/25/2014 1:34:39 PM , Rating: 2
Dammit wrong one.
I have a friend at Citi Ill ping he works in security. He said a few months back they have a Windows Phone app in development but I don't bank with Citi because they are obnoxious snobs. I cut all my credit cards with them because they decided to increase my interest rates on my credit card despite being with them 20 years and never missing a payment. A-hole company even my friend in security at Citi shakes his head at the stupid things they do.

Could be just my area but smaller banks work with you much better than the bigger ones have been.

RE: soon...
By Reclaimer77 on 1/25/2014 6:36:08 PM , Rating: 2
I thought you quit this place, again? That lasted a whole three weeks.

Either you have ESP and sense whenever Windows Phone is discussed here, or you've been lurking this site you claimed was beneath you, just incase someone called out your precious.

And you said I should get a life? Lol welcome back, loser.

RE: soon...
By troysavary on 1/25/2014 7:22:43 PM , Rating: 3
You are a fine one to talk about "precious". I can see you practically shedding tears when Google or Samsung are put in even a slightly negative light.

RE: soon...
By Mitch101 on 1/25/2014 8:31:45 PM , Rating: 2
I also said DT is writing better articles but I barely read any of them like I used to now because I ask myself is this flame bait and if it is I don't bother opening it. Im learning not to take the bait and break the habit. The one article was a POS and now I rarely contribute to DT and I found I got a few hours of my life back in doing so. It will be rare when I comment as I realize its really a waste of time. My computer and time is reserved for much more fun things again.

Instead of wasting time posting useless comments and getting drawn into moronic fanboi arguments Im building a Virtual Pinball machine with PinMame now, Fixing my MAME cabinet, playing XBox One, going to the gym more often. I was supposed to go out tonight with friends but going to the gym instead so Im in good cardio conditioning for skiing in a couple weeks and once I get deeper into my build will be putting my old site back online and using a computer for what its meant to be used for doing fun and exciting things not useless fanboi crap defending products or companies that dont pay me for liking them. Am I totally done obviously not yet but very close.

Thanks for me recognizing why I left here in the first place.

RE: soon...
By Reclaimer77 on 1/26/2014 10:09:32 AM , Rating: 1
Passive aggressive much?

I'll see you in a few weeks when you, despite claiming you're above it all, come back yet again.

defending products or companies that dont pay me for liking them.

Damn! Microsoft fired you? I'm sorry, that must be rough.

p.s. I built my first Mame cabinet out of a Street Fighter II arcade game like 12 years ago. And even THEN I didn't talk about it this much...

RE: soon...
By Mitch101 on 1/26/2014 11:12:56 AM , Rating: 2
Ive never worked for Microsoft. Sorry this is how you prefer to spend your time on this planet.

RE: soon...
By Cheesew1z69 on 1/26/2014 12:01:59 PM , Rating: 2
Sorry this is how you prefer to spend your time on this planet.
As you do the same....

RE: soon...
By retrospooty on 1/24/2014 9:41:51 PM , Rating: 2
Gee, this guy isnt a total troll is he? LOL.

Meh, I am not surprised, it's the last Q of a 4Q cycle for hte GS4. GS5 coming soon. SAmsung overestimated thier sales as it was. The planned 100k units of S4, which was just pure fantasy. Bad planning, nothing more.

What is hilarious is that pic of Lee Kun-Hee above. The look on his face is priceless.

RE: soon...
By ShaolinSoccer on 1/25/2014 12:45:26 AM , Rating: 2
My point was is Apple is doomed worldwide for the reason its been the same crap for eons.

I will never buy an Apple product. That being said, people WILL buy Apple products for lots of reasons you never mentioned. If there is anything Apple did right, it's give what "certain" people want. Not only did they succeed, they made billions from it.

RE: soon...
By Manch on 1/25/2014 5:22:32 PM , Rating: 2
As an IT professional, You should be used to dealing with different and fragmented OS's. How many iterations of Windows OS and the software that usually accompanies it like lets say Office? You dont have to go back very far to see how they have changed the way you would go about configuring different services. The argument of the Android fragmentation is largely moot at this point. Most versions are identical enough that it's very easy to remember.

I have a lumia 920 as my personal phone and I like it. I would not allow it on my network. An android phone? Yeah, of course bc I can lock it down easy enough.

As for the market place? It's simply not as good as Apples or Googles. They finally got FF3 on WP8! Whoohoo! yeah, but it came out a while ago on android. Face it, as much as i like my phone, the market place is behind. Simple as that.

Im not a fan of Apple. never have been, but Im not delusional to think that they do not make nice products. Are they for me? nope. Android, well i have a tablet, and I like it. I tinker with it all the time. My phone though, I just wanted a nice phone that took decent pics and had time wasting games on it. Lumia suits me just fine. I may even get the new one with the 40MP camera, but im gonna wait to see if anything else comes along that changes my mind. I do like the OS, but it does have its shortcomings compared to Android and Apple. Best hardware? Come on bro. It's not. Does it run well? Yeah, runs great on middle of the road hardware. It's an efficient phone OS. That does not in turn make the hardware better.

RE: soon...
By melgross on 1/25/2014 6:45:25 PM , Rating: 2
Your post is a lot if crap. The variety of apps in Apple's App Store is greater than anywhere else. This closed vs open nonsense is something people should know better about.

Apple's worldwide sales aren't bigger because of price. There is no other reason. But still, sales are up dramatically in China and India as well.

RE: soon...
By Tony Swash on 1/27/2014 9:43:35 AM , Rating: 1
My point was is Apple is doomed

I keep saying that!

RE: soon...
By inighthawki on 1/24/2014 8:45:06 PM , Rating: 2
As someone who is a large fan of MS products, including Windows Phone, Nokia's lumia line is not at all that great. They are bulky and plasticy, and battery life is about average. The OS is great, but not by Nokia and definitely not specific to Nokia phones.

RE: soon...
By troysavary on 1/25/2014 6:47:53 AM , Rating: 2
WinPhone might as well be exclusive to Nokia, seeing that no one else is treating it as anything more than a side project, if that. Best hardware is debatable, depending on what you are looking for.

Pluses: best camera, best sound recording, one of the toughest smartphones out there, wireless charging.

Minuses: lack of replaceable battery, lack of SD card slot on some models, and until 1520, lack of large screen and latest gen processor.

So it depends on what you want. For me, the outstanding picture, video, and sound recording are enough to overlook the battery problem, although I really wish it was replaceable.

RE: soon...
By kmmatney on 1/25/2014 7:51:18 PM , Rating: 2
I just couldn't get myself to buy a WinPhone. I just felt like I would be locked down too much by the OS. I've owned 2 iPhones, but at least you could Jailbreak and customize them.

"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone

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