Samsung on Friday said ts first quarter profit jumped to a record high as smartphone sales remained strong.
The company announced revenues of 52.87 trillion won on a consolidated basis for the first quarter ended March 31, 2013, a 6-percent decrease from the previous quarter. Consolidated operating profit for the quarter reached 8.78 trillion won, representing a 1-percent decline (QoQ), while consolidated net profit for the same quarter was 7.15 trillion won.
Highlighting the quarterly performance, the IT & Mobile Communications (IM) Division which comprises the Mobile Communications, Networks, and Digital Imaging businesses, achieved profitable results backed by strong smartphone sales coupled with reduced marketing expenses.
The IM Division rang up the first quarter with revenues of 32.82 trillion won, a 7-percent increase from the previous quarter. Sound sales of GALAXY S III and GALAXY Note II devices aided profit margins for Mobile Communications, but the company forecasts that global demand for smartphones is will dampen in the second quarter, compounded by heightened competition. The January-to-March quarter again proved trying on the PC business, while the Networks Business came around with a stable supply of Long Term Evolution (LTE), fourth-generation (4G) telecommunications equipment.
Demand for consumer electronics products in emerging markets stemmed further sales losses but weak seasonality and a sluggish economy took their toll on Samsung?s sales of TVs and home appliances.
"Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches," said Robert Yi, Senior Vice President and Head of Investor Relations.
Mr. Yi cautioned, however, "We may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market while TV growth will continue to wane in developed markets."
On the components side, global supply of PC DRAM remained weak, brought on by adjustments in the product mix by chipmakers opting to manufacture mobile and server DRAM over chips used in PCs. Samsung is looking to improve its profit margins with a differentiated product portfolio.
The Display Panel segment faced a challenging quarter due to seasonally soft demand from set makers. However the introduction of new devices and increased shipments of smartphone display panels, prevented steeper losses.
As for this year?s capital expenditure, Samsung Electronics executed a combined total of 3.9 trillion won for the quarter. The Semiconductor and Display Panel segments were each accountable for 1.5 trillion won in capex spending. Samsung is poised to increase investment beginning from the second half of the fiscal year to preempt rising demand for differentiated products and to harness its competitiveness in the high-tech industry.
The company expects the proportion of capex, compared with that of last year, to be larger in the second half of 2013. Overall spending this year is likely to be similar to the 22.8 trillion won invested in 2012.
Samsung?s Semiconductor businesses - including Memory and System LSI - posted consolidated 8.58 trillion won in revenue, a 11-percent drop from a quarter earlier. The Memory chip unit logged 5.12 trillion won in earnings but, compared with the previous period, quarter-on-quarter revenue retreated 4 percent.
PC DRAM supply continued to decline in the quarter, stifled by weak demand in PCs, while demand for mobile DRAM, used in smartphones and tablets, remained stable. Samsung?s DRAM business remained solid with a differentiated product mix including server DRAM.
Increased specialty DRAM for eMCP, LPDDR3 and high-density servers boosted profitability. The NAND flash memory segment remained competitive through process migration, which reduced cost and expanded offerings of high value-added solution products. Profitability for the System LSI Business was hampered by seasonally slow demand in set products that use logic chips.
Prospects for the PC DRAM market are uncertain as tighter demand and narrower market size weigh on suppliers. Mobile DRAM will continue to see growth, as the market?s appetite for high-performance, high-density chips increases.
With the rollout of new and more powerful mobile devices expected throughout the year, the market for NAND flash memory and increased adoption of Solid State Drives (SSD) at data centers will escalate demand. The ramp-up of 28 nanometer process technology is expected to shore up System LSI?s earnings moving forward.
Samsung's Display Panel business recorded revenue of 7.11 trillion won in the first quarter while posting an operating profit of 77 billion won. This represented an 8-percent dip in sales compared with the previous quarter on the back of traditionally weak seasonal demand. Although operating profit declined, profitability was higher than the corresponding quarter of last year.
For the first quarter of 2013, overall panel demand retreated as the global economic slowdown affected consumer spending amid weak seasonality. Under this downward-trending demand, Samsung saw the average selling price of LCD panels decline in the upper single-digit percentage range. Overall however, the company was able to deliver solid results with sales in high value-added products, such as panels for tablets and OLED panels for smartphones, delivering growth.
Looking ahead to the second half, Samsung anticipates panel demand to recover in line with the approach of higher seasonal demand and the launch of new products. For TV panels, demand is likely to rise toward the end of the second quarter and the company will focus its energies on enhancing its premium product portfolio, including large-size TV panels over 60 inches in size.
Concerning the outlook for IT panels, although caution remains for PC and monitor growth in the second quarter, demand for mass market tablet displays is expected to increase on-quarter as new products are launched by manufacturers later in the year. To meet anticipated demand, the company will strengthen its line-ups in the mass market and high valued-added panel segments. In OLED panels, continued growth momentum is expected with the launch of new products in the premium smartphone category.
The IT & Mobile Communications division - consisting of Mobile Communications, Networks and Digital Imaging businesses - registered operating profits of 6.51 trillion won on 32.82 trillion won in revenue for the March quarter. Out of the total IM earnings, the mobile business was accountable for 31.77 trillion won in sales.
Hero products including GALAXY Note II and GALAXY S III spurred growth in the quarter. Although demand for tablets around the world slid 30 percent quarter-on-quarter, Samsung?s GALAXY Tab 2 series continued to sell consistently from the previous quarter.
Market research firm IDC estimated that Samsung shipped 70.7 million smartphones during the first quarter, up 61 percent over a year earlier and capturing 33 percent market share. Apple, the second-largest smartphone maker, sold 37.4 million iPhones. Its market share fell to 17 percent from 23 percent a year earlier, IDC said.
For Samsung's Networks Business, the global expansion of LTE networks has lifted its earnings on-quarter driven by an increased supply of fourth-generation (4G) wireless equipment.
As for PC shipments, the market told a different story because of lackluster global demand. Despite challenging market conditions, the company will work to improve our product mix by increasing sales of mid- to high-end products.
Looking ahead, Samsung anticipates smartphone sales to stay flat in the second quarter but will pick up again in the second half of the year. As more mid- to low-end mobile devices enter the market and new premium products are rolled out, the race for market share will intensify.
The company will strive to remain competitive amid difficult conditions by expanding the lineup of smartphones and tablets this year, starting with GALAXY Note 8.0 and the flagship GALAXY S 4 smartphone.
The Consumer Electronics Division - encompassing the Visual Display, Digital Appliances, Printing Solutions and Health and Medical Equipment businesses - posted an operating profit of 230 billion won for the quarter on revenues of 11.24 trillion won. The Visual Display business accounted for 7.43 trillion won of earnings.
Seasonally low demand for consumer electronics goods during the first quarter corresponded with the Division?s overall sales retreating by 23 percent on-quarter. In the TV market, demand was down in a quarter-on-quarter comparison but improved year-on-year as emerging markets maintained growth. Amid these challenges, Samsung continued to expand sales of its premium TV lineup, including region-specific LED models, and saw shipments of its premium ES7000/8000 series gain 25 percent on-year.
Looking forward, although sluggish demand is likely to linger into the second quarter, a marginal boost in TV market sales is expected on improved demand for high-end TV products. Moving into the peak seasonality of the second half of the year, global market competition may intensify with the phasing out of older models and the introduction of premium products.
Samsung's response in developed markets will be on extending sales of differentiated Smart TVs and launching premium UHD TVs. In emerging economies, the company will strengthen competitive advantages of its customized LED TV products and respond to growing demand for premium models.