A Closer Look at Samsung's Q1 Results

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May 04, 2015

Samsung Electronics Ltd. (SSNLF, Financial) released its financial reports for the first quarter 2015. Profits saw a decline of 39% as users preferred iPhones as compared to Samsung phones. However, on a positive front, the South Korea based company overtook Apple Inc. (AAPL, Financial) to become the world's largest smartphone manufacturer for the quarter. The market closed at $1286.85 on Monday.

Q1 numbers

Samsung earned a profit of $4.35 billion that is 4.63 trillion South Korean Won. For the same period last year, ended March 31, 2014, the reported profit was $6.9 billion. This is a massive drop in profits compared to last year. It also missed the analysts' estimates of $7.4 billion by a data compiled by FactSet. The main reason for the decline was the drop in profit from the mobile division. Last year, for the same period, the profit earned was $5.97 billion. However, this quarter reported a mere $49 billion profit. Though the volume of phones sold by the South-Korean firm was higher, Apple had an advantage as they launched various models with large screens. Though Samsung does not officially reveal the number of smartphones sold, roughly around 81 million has been sold in the quarter, some analysts predicted. It may be confusing as to why Samsung profits fell even though they sold a whooping 81 million phones as compared to Apple's 61 million. The main reason is the low-priced handsets which got sold in larger quantities as compared to the flagship models. The smartphone company also reported a market share of 24%, as compared to the 31% for the same period last year. Given that Apple has a market share of 18%, Samsung is indeed in a better position.

Out of the various units, the component unit saw an increase in profit for the quarter. This unit provides the chips and displays which are required in the manufacture of TV's & phones. The consumer electronics unit made a loss of around $130 million. The revenue for the quarter reduced 12% to $43.8 billion as compared to the same period last year. The operating income fell 30% to $5.56 billion. However, as compared to the fourth quarter of 2014, the operating profit rose 13.1%. An official of the South Korean multinational conglomerate company said that Asia and other regions have been challenging areas, but the performance worldwide had stabilized Samsung has performed well to recapture the title of the 'world's largest smart-phone vendor'.

Investor’s take

Though the scenario looks a little dull, it is expected that the overall earnings will rise in the next quarter as compared to the first quarter. Samsung expects an increase in sales of its high-class phones like the Galaxy models. The Samsung S6 Edge which was released recently at the Mobile World Congress has exceeded expectations. However, due to low supply of curved displays, sales have not been up to the mark. The VP of the firm's mobile communication business said that in all probability, the curved display supply will increase in the coming quarter, and this in turn will boost sales, provided a tight hold is maintained on marketing expenses. Increase in sales of the high-tech smartphones will obviously raise profits and earnings, which will boost shareholders' confidence in the smartphone company. Samsung has also said that due to increased demand for display panels & semiconductor parts, overall earnings for the next quarter should increase. Sales data is also an important factor that needs to be considered while finding if the margins will extend their rebound. Hopefully, if things turn in the company's favor, earnings might recover substantially in the coming quarter.