Samsung posts surging Q2 profit thanks to smartphones, but mobile momentum slowing

Samsung Electronics reported that its net profit soared 50 percent year-over-year in the second quarter, thanks in large part to its booming smartphone business. However, the company showed signs of slowing growth in its mobile unit and warned that competition in the third quarter could hamper its business.

Overall, Samsung said its net profit jumped to a record of approximately $6.97 billion in the second quarter, up from $4.56 billion in the year-ago period and higher than the previous record of $6.41 billion in the first quarter. Total sales jumped 21 percent from a year ago to around $51.6 billion, in line with the company's guidance.

Sales in the company's mobile business jumped to $31 billion, up from $20.1 billion in the year-ago quarter and $28.51 billion in the year-ago period. The unit remains responsible for about two-thirds of company's earnings, according to Bloomberg, but there are signs that growth may be slipping. Operating profit at the unit jumped 52 percent-year-over-year but fell 3.5 percent from the first quarter.

"The mobile business, the company's biggest bread earner, has already peaked out in the first quarter," Lee Jae Yun, an analyst at Kiwoom Securities in Seoul, told Bloomberg. "That is increasing uncertainty over the company's overall profit growth next year."

Samsung does not report how many handsets or smartphones it ships in each quarter. However, research firms have been estimating unit shipments for the past several years. IDC said that Samsung shipped 113.4 million total handsets (smartphones and features phones), up from 87.5 million in the year-ago quarter. Strategy Analytics pegged the total slightly lower, at 107 million, up from 93 million in the year-ago period.

Samsung's growth in the quarter was likely fueled by its flagship Galaxy S4 smartphone, which went on sale globally and which the company has spent billions to market. IDC said Samsung shipped 72.4 million smartphones in the quarter for 30.4 percent of the market, while Strategy Analytics estimated Samsung shipped 76 million smartphones for a market share of 33.1 percent.

Unlike rival Apple (NASDAQ:AAPL), which largely sells one new iPhone model and discounts the price of two older remodels, Samsung benefits from selling multiple variants of its Galaxy smartphones at a wider range of price points, which increases volumes. (Apple sold 31.2 million iPhones in the last quarter.) Samsung said its smartphone sales grew and were led by "solid S4 shipments," but that it suffered the marginal profit decline "due to increased costs of new product launches, R&D and retail channel investments, etc."

Samsung said it expects the move toward LTE to benefit its smartphone sales in developed markets, while mass market smartphones and growth in China are expected to help it in emerging markets. The company is also banking on increased demand for tablets. However, Samsung said it could see a slowdown in its mobile business in the months ahead.

"The smartphone market will likely continue to grow in the third quarter but there's a chance that the pace of growth may slow as competition intensifies with new model releases," Kim Hyun-joon, vice president of the mobile business, said during an earnings conference call Friday, according to the Wall Street Journal.

For more:
- see this Samsung release
- see this Samsung presentation (PDF)
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this CNET article
- see this IDC release
- see this Strategy Analytics release
- see this separate Strategy Analytics release

Special Report: Wireless in the second quarter of 2013

Related Articles:
Samsung touts LTE Advanced version of Galaxy S4 as analysts cut sales estimates
Samsung: We'll hit 10M Galaxy S4 sales in less than a month
Samsung dominates in Q1 smartphone shipments, but warns of coming slowdown
Samsung posts 53% jump in expected Q1 profit ahead of Galaxy S4 launch
Samsung to open 1,400 mini-stores within Best Buys, challenging Apple

Sponsored by ADI

What if we were never truly alone? Our next-gen communications technology can help people in even the most remote places stay connected.

What if there were no ocean, desert, mountain or event that could ever keep us from telling our stories, sharing discoveries or asking for help? ADI’s next-gen communications technology could keep all of us connected.

Suggested Articles

Mint Mobile, the MVNO made famous by actor Ryan Reynolds, expanded its partnership with Best Buy.

AT&T has largely failed to make its case for its competitive advantage in 5G, resulting in a marketing void.

Dish will deploy Mavenir's RCS Business Messaging software for customer support services.