Samsung mobile phone sales fell in Q1 2014

Samsung mobile phone sales fell in the first quarter of 2014, with revenues declining to 33.4 trillion won ($32.3 billion). However, the company’s mobile phone unit’s operating profit increased 18% compared to the previous quarter, partly because of “positive impact of adjustment of one-off expenses.”

Samsung is the largest mobile phone manufacturer globally, and its handsets make up the majority of the company’s profits. In July 2014, Apple gave way to Samsung as the world’s richest mobile phone maker.

Samsung’s fall in smartphone sales in Q1 2014 contrasted with Apple 17% rise, which drove an overall 5% increase to $45.6 billion.

The Samsung Group as a whole registered a net profit of 7.57 trillion won ($7.5 billion) for Q1 2014, compared to 7.3 trillion ($7 billion) in Q3 2013.

Update, June 25, 2014: Samsung’s Chief Financial Officer, Lee Sang Hoon, warned that the company’s Q2 earnings will be “not that good”.

Galaxy range helped Samsung grow

Samsung has grown thanks partly to the success of its Galaxy range of smartphones. In 2012, Samsung overtook Nokia as the world’s largest producer of mobile phones.

However, as competition has become much fiercer, companies have had to push their prices down, which in turn have eaten into their profits.

The advanced economies are the main markets for smartphones, where demand growth has started to ease.

Global smartphone market maturing

Andrew Milroy, an analyst with consulting firm Frost & Sullivan said in an interview with the BBC “This is further evidence that the global market for smartphones is maturing and as the pace of growth which firms such as Samsung have enjoyed in recent years is slowing. The company will have to look at introducing lower cost models in emerging markets to sustain the business.”

Samsung’s CEO said earlier this year that the company is interested in breaking into emerging markets with low cost handsets.

However, such companies as ZTE, Huawei, Xiaomi and other Chinese mobile phone makers have already entered emerging markets with low-priced products.

The Financial Times quoted Marcello Ahn, fund manager at Quad Investment Management, who said “Samsung has proved its ability to make cheaper mid-end smartphones with high-end features. It can pressure rivals further by cutting smartphone prices thanks to its strong cost competitiveness.”

Regarding its Semiconductor Business, Samsung wrote:

“Despite the overall decline in market demand, the Semiconductor Business continued its solid profitability momentum driven by the expansion of the 20-nanometer-class process migration and a greater appetite for DRAMs used in servers and for graphics solutions.”

Forecast for second quarter of 2014

Samsung says it expects to see a surge in profits during the second quarter and further on this year, as home appliances and display panels sell more.

Orders for display panels that are used for top-of-the-range smartphones and televisions are expected to rise, as new mobile handsets are launched “and consumers look forward to the upcoming World Cup in Brazil.”

Household appliance sales should accelerate on seasonal demand for air conditioners, as well as orders for upmarket TVs based on the World Cup effect.

Robert Yi, Senior Vice President and Head of Investor Relations, said:

“While developed markets are expected to lead global economic recovery, macroeconomic uncertainties, such as currency fluctuation in emerging markets due to QE tapering in the US, are expected to continue in 2014.”

“We expect our overall earnings to improve starting from the second quarter, driven by improvements in the Display Panel segment and the Consumer Electronics division in conjunction with steady growth momentum in mobile and memory businesses.”