Samsung’s profit hit by bigger iPhones, sinks 39 percent

Visitors tour a Samsung Electronics shop in Seoul, South Korea

Samsung Electronics Co. said its first quarter net profit plunged 39 percent as consumers switched to bigger iPhones, squeezing earnings from its mobile business to less than half what they were a year earlier.
The company reported yesterday that its January-March net profit was 4.63 trillion won (USD4.35 billion), compared with 7.49 trillion won a year earlier. That was lower than the forecast of 4.97 trillion won in a survey of analysts by financial data provider FactSet.
The larger-than-expected drop was due to a big profit plunge in Samsung’s mobile business. The maker of Galaxy smartphones said its mobile division generated 2.74 trillion won in quarterly profit compared with 6.43 trillion won a year earlier.
Analysts estimate Samsung sold more smartphones than Apple during the quarter. But the Korean firm lost ground in the more profitable high-end market to Apple after the maker of the iPhone began offering models with bigger screens last fall. Before that, large screens were a feature that set Samsung phones apart.
According to Counterpoint Technology Market Research, sales of iPhones were also strong in countries where Samsung’s presence looms large, such as its home market South Korea and Vietnam, which has Samsung’s biggest phone factory.
Samsung, which does not disclose its smartphone shipments, is estimated to have sold 83 million smartphones during the quarter, down 6 percent from a year earlier, according to Counterpoint. But most of the sales increase came from mid-level handsets like the Galaxy A series, which sell for less than its flagship models. The period preceded the launch of the latest versions of Samsung’s flagship smartphones.
Samsung said is quarterly revenue fell 12 percent from a year earlier to 47.12 trillion won while operating income dropped 30 percent to 5.98 trillion won, in line with Samsung’s earnings preview earlier this month.
The Korean company said its profits will increase during the second quarter as the Galaxy S6, and S6 Edge with a curved screen, expand sales after their global launch this month. But the shipments of those high-end phones will not be big enough to offset an expected decrease in sales of middle- to low-end models, it said. Marketing expenses will also go up, pressuring its profit margin.
The initial sales of the S6 were “great” but the pre-orders of Samsung’s new smartphones were “no match to the iPhone 6,” said Tom Kang, director at Counterpoint.
Samsung is betting big on the Galaxy S6 series to claw back sales in key markets such as China, where it lost its leading position to Apple and Xiaomi. As part of its push to make new smartphones more attractive, Samsung acquired mobile-payment startup LoopPay this year and introduced Samsung Pay, a mobile payment system on the latest Galaxy phones. The company also introduced new design elements to the S6 Edge phone, which has screens that curve. Youkyung Lee, Business Writer, Seoul, AP