Samsung cautious on smartphone sales

Rethink
Samsung boosted its global smartphone market share to one-third in the first quarter as iPhone's magic faded, and the Korean company confirmed a 42% year-on-year leap in its quarterly profits. Despite all the glory, it knows from the Apple experience that a market lead is easily lost, and was cautious, even gloomy, about smartphone prospects in the months ahead.
 
Competition is rising and prices falling in the smartphone sector, Samsung warned. These trends make its premium devices, like Galaxy Note, important for buoying margins, and the volumes the giant is building up will also be important to counter downward pricing trends. In the March quarter, Samsung shipped 69.4 million units, according to estimates by Strategy Analytics, up 56% on the year-ago quarter.
 
Meanwhile, iPhone shipments were up just 6.6% to 37.4 million units. LG, which reported its strongest smartphone performance to date in its financial results earlier this week, also shines in the analyst league table, taking third place in the segment for the first time. Global smartphone shipments in Q113 were up 36% to 209.5 million units. Key drivers were Chinese 3G growth and US LTE services, as well as demand for lower cost models in emerging markets, where smartphone growth increasingly lies.
 
“Samsung shipped almost two times more smartphones and grew nine times faster than Apple during the quarter,” said Strategy Analytics' Neil Mawston in a statement. That momentum should continue during the current quarter as the new flagship Galaxy S4 goes on sale today, though some US operators have been forced to postpone launches because of supply issues.
 
Another research firm, IDC, said Q113 was the first quarter in which smartphones outsold featurephones, seeing total handset shipments rising by 4% worldwide to 418.6 million. Within that, smartphones accounted for 216.2 million units, or 51.6% of the total.
 
In the smartphone space, Samsung commanded market share of 33.1%, followed by Apple with 17.9% and LG a distant third with 4.9%. Strategy Analytics ranks Huawei and ZTE in fourth and fifth places respectively, with 4.8% and 4.3%. In overall handsets, Samsung had 27.5% share in a segment where there is more pressure from ultra-low cost vendors. It was followed by former leader Nokia, its share – once as high as 40% - diluted to 14.8%. Apple was in third with 8.9%. LG and ZTE completed the top five with 3.7% and 3.2%.
 
Its rising dominance helped drive Samsung to its 42% jump in Q1 profits to 7.2 trillion won ($6.5billion), its sixth quarter of profit growth in a row, with smartphones identified as the primary contributor. Revenues rose 17% year-on-year to 52.9 billion won, slightly above the company's own guidance. Smartphone strength, coupled with a reduction in marketing expenses after the holiday quarter, offset weakness in TVs and home appliances.
 
However, further investment will be required to preserve its lead. “Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches," said Robert Yi, SVP and head of investor relations at Samsung.
 
He warned of tough conditions ahead in the Galaxy's market space, saying: “We may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market while TV growth will continue to wane in developed markets.”
 
Samsung anticipates that smartphone sales will stay flat in Q2 but will recover in the second half of the year, albeit accompanied by a intensified battle for market share and margin. It promised to expand its range of smartphones and tablets this year to remain competitive.
In other important business units, the display panel division suffered from seasonally soft demand from the TV sector, but limited losses with new technology introductions and rising reliance on smartphone screens.
 
Samsung's handset business is the biggest customer for the latter product line, and for other key offerings like mobile memory. The semiconductor division, however, saw revenue fall by 11% on trends such as the collapse of the PC DRAM market. 

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