Samsung Electronics faces a challenging outlook after reporting its third consecutive fall in quarterly profit as it struggles to make ground on Apple and deal with a tepid recovery in its TV and flat screens business.
The handset maker, however, said its mainstay memory chip business was rebounding after Japan's devastating earthquake and tsunami in March hobbled production from rivals including Toshiba.
"Although the memory chip business is reviving, other operations such as telecommunications and displays are facing tough times ahead," said Han Se-woong, a fund manager at AssetPlus Investment Management, which owns Samsung shares.
"Its race with Apple seems pretty difficult and income in its display division is in a slump."
Samsung's Galaxy model smartphones and tablet computers were seen among the biggest potential rivals to Apple's iPhone and iPad but it has been unable to match the US company's roaring sales growth.
Sony plans to soon join the fray with the launch of its first tablets in a market set to quadruple in four years.
Samsung is also the world's largest top maker of memory chips, flat screens and televisions. After hitting life-time highs in late January, Samsung shares have lost 12 per cent, as analysts lower expectations for its telecoms division, which includes smartphones and tablets.
Samsung reported a 2.95 trillion won (€1.85 billion) operating profit for January-March compared to the consensus forecast for a 3.1 trillion won profit. That was in line with Samsung's estimate for an operating profit of between 2.7 trillion won and 3.1 trillion won.
Samsung, which had negligible share of the smartphone market until early last year, has muscled in with its Galaxy models. It has since sold 14 million Galaxy S smartphones and launched the Galaxy Tab tablet in three different sizes.
This week, it rolled out a new version of its flagship Galaxy S smartphone in Korea and expects the model to sell more than 10 million units as the product makes a global debut from May through 140 carriers in 120 countries.
SK Telecom, South Korea's top mobile carrier, said it had received 160,000 preorders for the new Galaxy smartphone since it started taking orders on Monday and expects 60,000 customers will get the phone today and tomorrow when it launches service.
Apple is seeking to keep Samsung at bay with lawsuits claiming Samsung's Galaxy line of phones and tablets "slavishly" copy the iPhone and iPad.
Samsung has countersued and on Wednesday, it broadened a patent dispute against Apple by filing a lawsuit in federal court in California arguing that Apple's iPhone, iPod and iPad had infringed 10 mobile technology patents. Samsung made similar claims in Korea, Japan and Germany last week.
Samsung sold around 70 million handsets in the first quarter including tablets. It did not give breakdowns and analysts estimate it sold around 1 million tablets. Apple sold 4.7 million units of its iPad last quarter.
Soaring demand for tablets and smartphones is likely to fuel further growth at its semiconductor business, as Samsung counts Apple as its biggest client. Prices of computer memory chips have rebounded since last month's earthquake in Japan.
"I expect Samsung's operating profit to strongly rebound in the second quarter... Chip profits will be pretty good in the second quarter because of the rise in average sales prices," said Kim Sung-in, an analyst at Kiwoom Securities.
Samsung's profit is expected to rebound by a third to 4 trillion won in the current quarter, according to StarMine SmartEstimates, which places more weight on recent forecasts by top rated analysts.
Samsung said the chip market would improve slightly in the current quarter and demand for NAND flash chips would also sustain growth momentum thanks to solid smartphone and tablet markets.
The first-quarter operating profit, the lowest since the second quarter of 2009, compared with a 3.0 trillion won profit in the preceding quarter and 4.4 trillion won a year earlier.
Semiconductor and telecoms were the main profit pillars in the first quarter. Operating profit from semiconductors accounted for 56 per cent of the group's total profit and the rest came from the telecoms division.
Its television and appliances unit reported an 80 per cent drop in profit to almost breakeven, while the flat screen division swung to a 230 billion won loss from a 490 billion won profit a year ago.
Sales of flat-panel TVs edged up 5 per cent from a year ago but tumbled 31 per cent from the previous quarter to 8.8 million units.
Reuters
