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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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RE: Only?
By retrospooty on 1/25/2014 7:23:33 AM , Rating: 3
They will flash it with Cyanogenmod, or one of many many other custom ROM's. :P

RE: Only?
By troysavary on 1/25/14, Rating: 0
RE: Only?
By Reclaimer77 on 1/25/2014 6:31:24 PM , Rating: 2
You just don't give up do you? These comparisons are absurd. You're trying to draw parralels that aren't there. The environments and devices are entirely different.

Reading posts like this on a tech site is embarrassing. You troll badly and should feel bad.

RE: Only?
By troysavary on 1/25/14, Rating: -1
RE: Only?
By Reclaimer77 on 1/26/2014 9:01:07 AM , Rating: 4
How is it not the same?

How are Windows 8 and Android not the same? can't be serious.

The scenarios are entirely different. You have to know that, I can't believe you're seriously trying to draw that parallel.

You never HAVE to flash an Android ROM. And there is no simple program that fixes Windows 8. It's clear people like you never understood why Windows 8 caused such an uproar. It WASN'T because of the Start button being gone, get a clue.

The only way your analogy makes sense is if Google released an Android version for mobile devices that was optimized purely for a keyboard and mouse. Like Microsoft released Metro for desktops that was optimized for miltitouch.

Also the solution is entirely different. Whereas flashing a custom ROM will eliminate ALL issues someone might have with TouchWiz or whatever, installing Start8 or what-have-you on a WIndows 8 machine is at BEST a bandaid.

And you can call me a fanboi or bi*ch all you want. That wont cover up your obvious disdain for Google and the Android ecosystem as a whole, which is the motivation behind your every post. The only reason you created this ridiculous Windows 8 tie-in to this discussion was to, yet again, attempt to troll Android users and make us appear hypocritical.

You are trying too hard. Your passion is there, but you lack tact.

RE: Only?
By troysavary on 1/27/14, Rating: 0
RE: Only?
By Rukkian on 1/27/2014 10:07:24 AM , Rating: 2
Both come with UIs that some people hate. And both are fixable.

That some word is a key distinction in my mind. While probably 90% of non-touch screen users hate the interface of win8, for Touchwiz (which is only one option) it seems like only the tech heads (probably about 5%) actually hate the interface and still buy it.

Another big difference here is choice. With Win8 you get the interface MS wants you to get. With Android, you can get one with a skin (touchwiz, blur - pretty much gone now, etc) or one with stock Android (Nexus, Moto X, etc). If you don't like either of those options, then you can also put on a custom rom (either one you do yourself, or more commonly one somebody else did).

I know you really want to find a correlation, but I think you are really reaching to put the 2 things together.

RE: Only?
By Rukkian on 1/27/2014 10:10:34 AM , Rating: 2
One further note - I know many, many (really just about everybody I know with an Android) that are perfectly happy with the interfaces that come from LG, Moto, or even Samsung. I personally dont care for Touchwiz, and want to stay away from it. I got the LG G2, even though the interface is very much like touchwiz, and don't hate it as much as I thought I would. I did, however root it (since it is much easier to do than some Samsungs), and will put a custom rom at some point, however, I am not annoyed at the interface enough to bother at this point.

RE: Only?
By Reclaimer77 on 1/27/2014 10:25:33 AM , Rating: 2
I comprehend just fine. What I and others are trying to tell you, is the "situations" are anything BUT the same, and you're dragging this discussion into idiocy trying to build bridges that go nowhere.

Both come with UIs that some people hate. And both are fixable.

Except it doesn't work like that. You are trying to strip everything relevant away, until we're left with this dumbed-down parody of the truth.

I think the only point you're making here, is that you'll say and do anything to troll Android users.

RE: Only?
By troysavary on 1/29/2014 10:50:17 AM , Rating: 2
How are they not the same. You have yet to do more than say, "It is not the same." Explain the relevant differences. Bet you can't, because you can't get further than "Google good, MS bad."

You keep saying that Windows 8.1 doesn't work for keyboard and mouse also, but again you can't explain why. You never, ever have to see Metro in Win 8.1 if you don't want to. Stay on the desktop, and other than losing the useless transparencies, it functions and looks almost identical to Windows 7 once you add back the Start Menu.

RE: Only?
By retrospooty on 1/25/2014 10:02:15 PM , Rating: 2
You are drawing a ridiculous conclusion comparing 2 totally different things. Anyone can do this on both, but they shouldn't HAVE to. On the Samsung, its not out yet, but I guarantee you you dont HAVE to use it. Just put the regular UI on and it's over. With Win8, its sort of forced on you and the old menu is gonesville. If Samsung removed the old menu and put this in, I would agree, that would be bad... But they wont do that.

#2 A PC is where people get work done. A phone is a phone.

#3 The point of flashing a custom ROM is not because of a UI, its to make it a better operating device. Faster, better UI, better features. If there were an OS that did that over Win8, I would load it.

RE: Only?
By Reclaimer77 on 1/26/2014 9:37:40 AM , Rating: 2
#4 Android is free, Windows isn't.

Also why are we talking about flashing entire ROM's when simply picking a new Launcher would fix a lot of this?

RE: Only?
By retrospooty on 1/26/2014 9:59:21 AM , Rating: 2
"we" arent. I just made an off the cuff comment about Cyanogenmod, and Troy took it as if it was the only solution trying to make himself "right" from an argument he already lost.

So yes... #5 you can load any launcher you want.

But to the original point, the main difference is #1. If MS just left the old and added the new start menu there would have been ZERO stink about it... But they forced the new one on everyone.

RE: Only?
By troysavary on 1/27/14, Rating: 0
RE: Only?
By retrospooty on 1/27/2014 8:57:48 AM , Rating: 2
LOL. I agree, its a lot of "us vs. them" when the reality is often somewhere in the middle...

But like I said on the issue of the UI. Whether or not this UI is real and to be released isn't the point, if it is released, I am 100% sure it wont be put on as an unavoidable option, even on stock unrooted ROM's. It will be something that you can simply choose not to use and go back to the traditional icon/homescreen UI. Therefore any comparison to Windows 8 is invalid, as Windows 8 didn't add Metro as an option, it forced Metro as a new UI to a whole type of interface (kb and mouse) that it wasnt made for.

RE: Only?
By troysavary on 1/29/2014 11:04:11 AM , Rating: 2
No it didn't. The desktop is still there. It didn't go away. All the desktop versions of the popular Windows applications are still there too. You just have to make sure that they are set as the defaults rather than the Metro versions. There is nothing that forces you into Metro once you set it up the way you want.

Should MS have made it easier to stay on the desktop? Most definitely. It should have been in the installation options. On installing, you should be given the choice of Metro only, Desktop only, or the hybrid they now have. But to say it is forced on you is FUD. It is easy to set your preferences to launch desktop apps by default and install a Start Menu replacer.

Besides, Metro works just fine with a keyboard and mouse. I use it regularly on my non-touchscreen laptop. The quality of the Metro versions of apps is hit-and-miss though. Some are great, but others fall far short of their desktop counterparts. Zune vs. the Metro music app for example. Zune software is head and shoulders superior to Xbox music app in Metro.

RE: Only?
By mik123 on 1/25/2014 6:35:18 PM , Rating: 2
It's actually not that easy to flash S4 with recent firmware versions...

RE: Only?
By troysavary on 1/25/2014 7:21:02 PM , Rating: 2
Exactly, but somehow it is fine the way it is to people like reclaimer, but downloading Start8or ClassicShell on Windows is too hard.

RE: Only?
By Reclaimer77 on 1/26/2014 9:06:15 AM , Rating: 2
Where did I say that? Can you show me? I didn't even bring up flashing a ROM until YOU did!! And where did I say ClassicShell or whatever was too hard? It's not! It doesn't even fix Windows 8 though, but that's not even the point. That was NEVER part of this thread until you made it one.

Goddamn, you are just stupid to even go there. Windows and Android are not directly comparable. I can't believe you need this explained to you.

Go to 4Chan, please. I think even Daily Tech is too technical for you.

RE: Only?
By troysavary on 1/27/2014 5:03:56 AM , Rating: 2
Hehe, you say I lack class, yet you are the one calling me stupid, and telling me to go to 4Chan. Easy to see you've completely lost the argument now.

You are even moving the goalposts. The lack of Start Menu was supposedly the huge flaw in Win8. But since that is easy to fix, now that is not the problem, but something else undefined by you is now the issue?

I didn't bring up flashing a ROM, retro did. Read the whole thread rather than just looking for my name so you can vent hostility.

RE: Only?
By superflex on 1/27/2014 10:15:58 AM , Rating: 3

Why do you get so butt hurt when someone disses your phone?
Your validation is quite apparent.

I'd hate to see you as a parent on the football, LAX or soccer field.
You'd go postal when you kid got their ass handed to them by someone who understands the game.


RE: Only?
By Monkey's Uncle on 1/26/2014 11:24:24 AM , Rating: 2
What does either of those have to do with Samsung's phones?

RE: Only?
By Monkey's Uncle on 1/26/2014 11:22:56 AM , Rating: 2
What gives you that idea.

I found it dead simple and I have done it a dozen times using everything from Cyanogenmod's one-click installer to loading .tar ROMS with Loki to installing zips via recovery. Neither one takes me more than 20 minutes at the longest.

RE: Only?
By troysavary on 1/27/2014 5:06:20 AM , Rating: 1
I was just going off of what retro said. He said flash the ROM to install Cyanogen. I had no reason to doubt him that flashing the ROM was the way to install it. So the one-click installer is in the store now? I had read that they planned one, but didn't know it was out.

RE: Only?
By retrospooty on 1/27/2014 1:48:08 PM , Rating: 1
IT really doesn't make a difference. If you use the old recovery , loki, or installer, its still a ROM update. The installer is great for non-bootloader locked phones.

RE: Only?
By mik123 on 1/28/2014 2:10:11 PM , Rating: 2
What are you talking about? CyanogenMod does not support recent firmware versions (such as MK2) on ATT S4. To flash it, you need to use SafeStrap, which supports a very limited selection of ROMs (no KitKat, AFAIK).

RE: Only?
By troysavary on 1/29/2014 11:06:51 AM , Rating: 2
Si it isn't as easy as the fan brigade is trying to lead me to believe?

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