Earnings Shock
Samsung Electronics’ sales revenue for the fourth quarter of 2013 was 8.3 trillion won (US$7.8 billion), down 18 percent from the previous quarter.
Samsung Electronics announced yesterday from preliminary estimates that its sales revenue for Q4 was 59 trillion won (US$55 billion), and and operating profit was 8.3 trillion won (US$7.8 billion).
Sales revenue was down by 0.14 percent from the third quarter’s 59.8 trillion won (US$56 billion), while operating profit was 18.31 percent lower than the previous quarter’s record-setting 10.16 trillion won (US$9.4 billion).
Compared to Q4 2012, when Samsung posted sales revenue of 56.1 trillion won (US$52 billion) and operating profits of 8.8 trillion won (US$8.2 billion), sales revenue was up by 5.2 percent, but operating profit was down by 6.1 percent.
However, Samsung Electronics’ annual sales for 2013 was 228 trillion won (US$213 billion), and operating profit was 36.77 trillion won (US$34.4 billion), setting an all-time record.
Annual sales were up by 13.6 percent from the year before 201.1 trillion won (US$188 billion), and annual operating profit rose by 26.4 percent, from 2012’s 29 trillion won (US$27 billion).
Industry experts expected Q3 earnings to drop to about 9 trillion won (US$8.4 billion) due to the weak sales of smartphones, but the estimates released were far lower than expected, and as it turned out, were an “earnings shock,” or a result that fares far below the estimated projections to cause market shock.
The announced estimates were about 12 percent lower than 9.4 trillion won (US$8.8 billion). This was a result worse than the initial outlook forecast by twelve brokerage firms. The lowest estimates were 8.8 trillion won (US$8.2 billion) by BNP Paribas Korea, and in the mid-8 trillion won range (US$7.5 to US$7.9 billion) by Credit Suisse.
Samsung Electronics last year climbed over the historical 10 trillion won (US$9.4 billion) mark for the first time in Q3, and Q4 was expected to remain at that level, but towards the end of 2013 the projection had slightly adjusted, due to changing market conditions.
The operating profit margin, which had been over 17 percent in Q3 2013, dropped to 14.1 percent in Q4.
Operating profit had been riding an all-time high from Q4 of 2011 to Q4 of 2012 for five consecutive quarters. But 1Q of 2013 saw a slight drop. Then Q2 and Q3 experienced a rebound and again record-breaking growth for two quarters. Q4 saw the growth stop, this time coming to a skidding halt.
Samsung Electronics plans to confirm the actual earnings for Q4 later this month. Considering that preliminary announced estimates are generally lower than actual earnings, it is expected that the fourth quarter’s results will fare slightly better.
Falling exchange rates, bonuses paid out to its employees, plateauing market conditions for electronic products including cell phones, and the weak performance of LCDs were some of the factors that contributed to the earnings shock, industry sources pointed out.
The strong won, which was reflected in a 4 percent drop in exchange rate, contributed to unfavorable market conditions.
Samsung’s smartphones continued growth, selling 390,000 units and taking 34.6 percent of the smartphone market, but the general trend reflected a tipping point, hinting slightly slowing sales.
Samsung Electronics had been flying high thanks to its core IT and mobile businesses. Positive results were expected in 2013 when the Galaxy Note 3 was released in September, but despite the holiday season rollout of TV and electronics products, the results turned out to be disappointing.
The performance of semiconductor chips was positive, as reflected in DRAM’s steady price. Smartphones gave mixed results, as the slight growth of high-end phones showed signs of slowing down, but mid to low-end products showed steady sales.
There are mixed predictions for the coming 1Q 2014. While the slowed growth of smartphones in a traditionally slow part of the year has naysayers casting doubts on 1Q, the upcoming Winter Olympics and newly-released tablet PCs - supposedly Samsung’s next cash cow – have some onlookers believing that Samsung can gain a second wind. Since the opening trading day of the new year, Samsung Electronics shares dropped 6 percent, reflecting the fear of preliminary estimates, but after the announcement came out, bounced to a slight gain.