Samsung regains No. 1 spot in smartphones, promises improved profits thanks to Galaxy S6

Samsung Electronics boosted profitability in its mobile business in the first quarter to its highest level in three quarters and promised stronger sales ahead thanks to the global rollout of its flagship Galaxy S6 and S6 Edge smartphones. According to research firm Strategy Analytics, Samsung also regained its crown as the world's largest smartphone maker by volume in the first quarter.   

Samsung said its company-wide net profit for the third quarter fell 39 percent year-over-year to $4.31 billion (4.63 trillion Korean won). It was the fourth straight quarter that the conglomerate's net profit had fallen. Analysts had been expecting the company's net profit to slip by around 30 percent, according to the average forecast of a Dow Jones Newswires survey of eight analysts. Total company revenue fell 12 percent to around $43.8 billion, in line with estimates Samsung gave earlier this month.

The company said sales in its mobile division fell 20 percent from a year ago to $23.3 billion. Samsung added though that smartphone shipments increased from the fourth quarter led by mid to low-end products. The unit's operating profit plunged 57 percent to $2.55 billion as average selling prices declined.

After a rough 2014 in which sales and profits in its mobile business fell, Samsung saw its mobile unit's operating profit margins rise to 10.6 percent in the first quarter, up from 7.5 percent in the fourth quarter of 2014. Margins are now at their highest levels in three quarters. Samsung said margins improved thanks to lower marketing expenses and expansion of new mid-range and low-end smartphones.

Samsung shipped 83.2 million smartphones in the first quarter, according to Strategy Analytics, recapturing the top spot that Apple (NASDAQ: AAPL) held in the fourth quarter with its record-breaking iPhone sales. Samsung captured 24 percent of the smartphone market in the first quarter, the research firm said, but that was down from 31 percent a year earlier when it shipped 89 million smartphones.

"Samsung continued to face challenges in Asia and elsewhere, but its global performance has stabilized sufficiently well this quarter to overtake Apple and recapture first position as the world's largest smartphone vendor by volume," Strategy Analytics analyst Neil Mawston said in a statement. "Apple shipped 61.2 million smartphones worldwide and captured 18 percent market share in Q1 2015, rising from 15 percent in Q1 2014. Apple's new iPhone 6 and 6 Plus models remain wildly popular in China and worldwide, as consumers upgrade to larger-screen phablets for enhanced data experiences."

Lenovo/Motorola and Huawei captured the No. 3 and 4 spots, respectively, in the global smartphone market in the first quarter, according to Strategy Analytics.

Looking ahead to the second quarter, Samsung said it expects earnings in its mobile unit to improve led by increased high-end sales, with the Galaxy S6  expanding globally, while total smartphone shipments will likely remain at similar levels due to decreased mid-range and low-end sales. Samsung expects marketing expenses to increase due to the S6 expansion.

The S6 and S6 Edge feature new metal designs, simpler software and improved cameras and battery life. The phones also use Samsung's own chips, and Samsung said that "with premium smartphone sales entering into full swing, the DS Division [its components business] is expected to see demand in growth for its semiconductor products."

"Galaxy S6 sales have been going as well as expected, while demand for the Galaxy S6 Edge have been better than anticipated," Samsung Vice President Park Jin-young said during a conference call, according to Reuters.

According to Bloomberg, he said supplies of the S6 Edge which sports a curved screen, are "fast-improving, so the tight supply situation will be eased during the second quarter." However, Park said that the regular S6, which is less expensive, will likely sell more units.

"The second quarter will be brighter as mobile earnings are expected to improve, largely driven by the increased sales of the S6," Greg Roh, a Seoul-based analyst at HMC Investment Securities Co., told Bloomberg. "The pricier Edge device will take up half of the total S6 shipment from May, and that will give a strong lift to its mobile business."

Yet some analysts will want to see evidence of strong sales data before becoming more optimistic about Samsung's turnaround. "The second-quarter performance should be a bit better than the first, but I would need to see concrete sell-through data for the business before determining whether there will be a sustained earnings recovery," Hana Daetoo Securities analyst Nam Dae-jong told Reuters

For more:
- see this release
- see this presentation (PDF)
- see this Strategy Analytics release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see these two separate Reuters articles 

Special Report: Wireless in the first quarter of 2015

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