Samsung Electronics Co. Ltd. (SSNLF, Financial) expects a decline in their operating profit for the first quarter of 2015, but this figure will apparently beat the estimated figure by the Street analysts who have been speculating upon the stock which took a dip last year. The South Korean conglomerate expects a decline of 12% in sales and a reduction of over 30% in its operating income for the the specified period, though things will get clearer after the actual quarterly earnings for fiscal year 2015 are out towards the end of the month. The intense competition in the technology field, especially with the dominance of Apple Inc. (AAPL, Financial), is proving to be a major headwind for Samsung’s declining top and bottom lines. However, when the company shared this guidance for the quarter early this week, the stock jumped 3.2%, showing the enthusiasm among investors in Samsung’s financial highlights. Let’s take a peek into what the management shared regarding the revenue and profits expected from the first quarter of the year.
Financial statistics as shared by company
The company expects the operating profit to fall by 30.5% in the first quarter of the year, that is, January to March 2015. The operating profit is estimated to be around 5.9 trillion won ($5.4 billion), far below 8.5 trillion won reported in the first quarter of 2014. This reflects a whopping decrease of 30.5% compared to the same period of the past year.
However, data compiled by Thomson Reuters’ 41 analysts estimates the operating profit to be around 5.3 trillion won which is slightly below the company’s estimates.
Revenue should also witness a decline of 12.4% to 47 trillion won ($43.3 billion) in the first quarter of 2015, as indicated by Samsung’s top brass. This means that the company is taking a cautious stand as the sales estimates are below the 49.8 trillion won estimated by Thomson Reuters for January-March quarter. Such a stand has been taken by Samsung as it struggles to keep its dominance in the smartphone segment.
However, this guidance proves be a bit of a relief for the investors after a dismal performance in the fourth quarter of 2014 fiscal year in which operating profit fell about 36% year over year. The major reason for the drop was the capture of market share by Apple products. The iPhone 6 had influenced the smartphone market ever since it was released and led to Samsung losing in the smartphone space. Besides, competition fromXiaomi and Lenovo Group Limited (LNVGY, Financial) has also kept Samsung officials on their feet.
The redesigned flagship models are the ray of hope for declining sales
The company is hopeful that the Samsung Galaxy S6 and S6 Edge released at the Mobile World Conference this year will bring rapid relief to the declining sales. The tech giant has decided to modify the looks and come up with something more pleasing to the eye. These two models are void of plastic skins and are replaced with metal and glass. Possibly, the metal flagship products will turn the market in favor of the South Korea-based company. In fact, these smartphone models are expected to be delivered in 21 countries by April 10. So, a lot depends on the success of these two models for pulling up the sales of Samsung in the long run. And this will be apparent after their formal launch this week.
Concluding thoughts
The drop in profits for the quarter marks the sixth consecutive year-over-year decline for the struggling company, but there is still a silver lining among dark clouds for Samsung. Actually this decline in profits is gradually reducing as imperative while comparing the profitability drop with the past two quarters. In fact, Samsung is ready to go back on the offensive after the dismal performance in 2014 when competition from Apple and a handful of Chinese manufacturers started to gather storm.
Investors will have to wait for the financial reporting on the first quarter of 2015 to be released for gauging the actual performance of the South Korean giant in its first quarter. Till then, the declared company estimates seem to portray a mixed picture with sales dropping beyond analyst estimates, while profit decline is likely to be lower than the analyst estimates.
