Corporate Futures
Samsung Electronics announced on April 8 that its sales in the first quarter are estimated at 53 trillion won (US$51 billion), with gross operating profits of 8.4 trillion won (US$8.1 billion). The company’s operating profits in Q1 are likely to be lower than the figure for the first quarter of last year (8.78 trillion won, US$8.46 billion), but higher than the number for the final quarter of 2013 (8.31 trillion won, US$8.00 billion). The projected sales figure is a slight increase from the 52.87 trillion won (US$50.91 billion) of Q1 2013.
At first, analysts predicted that Samsung would record an earnings shock with operating profits of less than 8 trillion won, but its estimated profits in the IT & Mobile Communications field turned out to be slightly higher than previously thought, affected by the early launch of the Galaxy S5.
Experts are saying that the Korean tech giant has seen exponential growth for the last three years, but has now entered a period where it steadily generates quarterly earnings in the range of 8 trillion won. It means that the global smartphone market is firmly dominated by Samsung and Apple, which take away 97 percent of operating profits in the market (based on 2013 figures). However, there is growing concern about Samsung’s heavy reliance on smartphones and the likelihood that the failure of developing innovative products will jeopardize its position in the market.
Many point out that Samsung’s growth reached a limit in the fourth quarter of 2013, when its operating profits plunged by 18.3 percent from the previous quarter. With Samsung’s future hanging in the balance after its poor performance, the company’s stock price also fell, and rumors that Samsung was experiencing a crisis were widely circulated in the market.
To overcome difficulties, the largest Android phone maker came up with two strategies for smartphones. Samsung’s strategies were aimed at leading the premium smartphone market with the introduction of the Galaxy S and Galaxy Note series, and also increasing its market share by rolling out a large number of mid to low-end smartphones. In other words, the company made a plan to kill two birds with one stone.
Its strategy to expand market share was successful. Samsung’s share in the global smartphone market grew from 19.9 percent in 2011 to 32.3 percent in 2013. The number for the first quarter of 2014 is likely to further increase. The sales volume of Samsung phones in Q1 are estimated at 90 million units, up five percent from the 86 million units of the previous quarter. The projected number is even higher than the figure for the third quarter of last year (88.4 million units), which was the highest-ever quarterly result.
The world’s largest smartphone vendor has yet to announce its performance results by business unit, but Samsung’s operating profits in the IT & Mobile Communications area are estimated at as much as 6 trillion won in Q1, thanks to its growing market share.
On the other hand, the firm’s efforts to develop innovative products is widely acknowledged to be unsatisfactory, as evidenced by the sales volume of the Galaxy S series. Samsung sold 15 million Galaxy S units for a year, after its introduction in 2010, with 27.5 million units of the Galaxy S2 and 52 million units of the Galaxy S3. It shows that the sales volume of the new product nearly doubled. Nevertheless, the tide turned for the Korean firm following the launch of the Galaxy S4 in 2013. The annual sales volume after release was 57 million units, a mere 10 percent increase from the figure for the Galaxy S3. Samsung’s half success in its strategies for smartphones resulted in its not-so-impressive Q1 estimate.
In the meantime, the operating profit of the semiconductor business is estimated to be 2 trillion won (US$1.926 billion) in the first quarter, which is similar to the number for the previous quarter. This is largely attributable to the fact that the price of its flagship products — DRAM and NAND flash memory chips —remained strong. The tech company’s TV division is expected to post the highest-ever quarterly earnings in Q1, following the last quarter of 2013. As a result, its consumer electronics field to which the TV division belongs is likely to record 330 billion won (US$317 million) in operating profits, a year-on-year increase of 30 percent. In contrast, Samsung’s display business struggled in the first quarter. Some in the industry think that the display unit operated at a loss.
Industry analysts have different views about the firm’s future. Observers say that Samsung is poised for a take-off starting in the second quarter, since the sale of the Galaxy S5 is going to swing into high gear.
However, Samsung should be wary of the fact that it is becoming a predictable company, as the Q1 estimate was similar to market predictions. Many point out that it will eventually face a crisis unless it makes innovative products that exceed market expectations. Jung Tae-myung, professor of computer science at Sungkyunkwan University, remarked, “Samsung’s semiconductor, mobile phone, and TV businesses have played a major role in its success over the last 10 years.” He added, “To achieve remarkable growth once again, the company ought to develop innovate products just like Apple.”