Samsung focuses on Galaxy S6, S6 Edge as Q1 operating profit comes in better than expected

Samsung Electronics reported that it expects to post a better-than-expected operating profit for the first quarter. Samsung and its carrier partners will start selling the Galaxy S6 and S6 Edge, its curved-screen counterpart, on Friday, and the hope among investors is that the phone can boost Samsung's mobile profit margins.

For the first quarter, Samsung said its operating profit fell 31 percent to around $5.4 billion (5.9 trillion won), but that was better than the $5.03 billion (5.5 trillion won) average of 36 analyst estimates compiled by Bloomberg. Samsung said total sales fell 12 percent in the first quarter.

While the world's largest smartphone maker will likely report its sixth consecutive year-over-year drop in quarterly profit, the falloff is moderating. Samsung's operating profit slipped 36 percent year-over-year in the fourth quarter of 2014 and nosedived by 60 percent in the third quarter, the Wall Street Journal noted.

"These results are meaningful and will lead to very strong earnings expectations for the second quarter," HMC Investment analyst Greg Roh told Reuters.

Meanwhile, most financial analysts expect Samsung's sales and profit to improve in the second quarter with the launch of the new Galaxy phones. All of the major U.S. carriers will be selling them, though at a variety of different price points and with different rate plans. The S6 Edge is retailing for around $100 more than the S6. In general, the phones will be priced between around $600 and $1,000 without a contract, depending on the carrier.

Investors hope the new phones will be better received than the Galaxy S5 was in 2014. That phone's relatively weak showing helped drag down Samsung's mobiles sales and earnings in the second half of last year. As the Journal notes, Samsung had 10 straight quarters with mobile margins of 15 percent or more, but that slipped down to 7.1 percent in the third quarter of 2014 before inching up in the fourth quarter. Samsung has faced intense competition, especially in China and other Asian markets, from lower-cost smartphone makers, especially Xiaomi and Huawei.

Samsung responded by redesigning the S6 and S6 Edge with a metal unibody construction, improving the phones' battery life and removing and simplifying its own software. So far, the phones have received generally positive reviews. The S6 and the S6 Edge are "more design-focused than function-driven," Samsung's mobile marketing chief, Lee Young-hee, said in a recent interview with the Journal.

Kim Hyun-joon, a senior vice president at Samsung's mobile unit, said last year the company will focus on obtaining "a sustainable double-digit percentage margin" in mobile phones. The company has also said it will cut the number of smartphone models it offers in 2015 by at least 25 percent in a bid to slash costs and boost profits.

For more:
- see this WSJ article (sub. req.)
- see this separate WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article

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