Samsung reports flat mobile profits in Q4

Samsung Electronics posted flat profits from its mobile vision in the fourth quarter and a drop in sales from the third quarter, though the company still likely leads the market in terms of handset and smartphone shipments by a sizable margin. However, the South Korean conglomerate also said it plans to slash its marketing spending on mobile relative to revenue, though it declined to say by how much.

Overall, Samsung said companywide net profit for the quarter rose 3.7 percent to $6.7 billion, but its profit was hit by a $644 million special one-off bonus paid to employees, as well as foreign exchange rates and currency fluctuations. Bloomberg noted that's the slowest profit growth since profit fell in the third quarter of 2011.

Samsung posted mobile sales of $29.6 billion in the quarter, up from $27.23 billion in the year-ago period but down 9 percent from $32.4 billion in the third quarter. The unit, when including network equipment sales, reported an operating profit of $5.03 billion for the fourth quarter, flat from the year-ago quarter and down 18 percent from the third quarter.

Mobile phones and network gear accounted for 66 percent of Samsung's fourth-quarter operating profit. However, as the Wall Street Journal noted, the operating margin from the division fell to 16 percent from 17.8 percent in the year-ago period. Samsung has been spending heavily to promote devices like the Galaxy S4 and the Galaxy Note 3, as well as its Galaxy gear smart watch.

Samsung said its smartphone shipments dropped "slightly" from the third quarter, without disclosing figures, because of inventory adjustments. Samsung does not disclose quarterly handset or smartphone shipment figures, but according to the Journal, analysts estimated that Samsung sold between 85 million and 87 million smartphones during the quarter. Samsung said its tablet shipments increased sharply in the quarter due to the launch of the Galaxy Tab 3 and new Galaxy Note 10.1. The company said its sales growth was driven by continued strong demand in developed markets, including North America and Europe.

Samsung aims to slim down its mobile marketing budget, but did not disclose how much it spent on such marketing in 2013. "We'll actively leverage global sports events such as the Sochi (Winter) Olympics and our retail channels... but we will try to raise the efficiency of our marketing spend and lower our overall mobile marketing budget to revenue this year compared with last year," Hyunjoon Kim, senior vice president of Samsung's mobile business, told analysts after the company released its earnings, according to Reuters.

Analysts warned that 2014 could be a perilous year for Samsung in smartphones, especially in China, the world's largest smartphone market. The company is expected to announce a its next flagship smartphone, the Galaxy S5, sometime in the first quarter, and perhaps at Mobile World Congress next month in Barcelona.

"Samsung must be very careful not to get caught in a pincer movement in China this year between Apple's iPhone at the high end and a long tail of Chinese vendors, like Lenovo, at the low end," Strategy Analytics analyst Neil Mawston told the Journal. Apple (NASDAQ:AAPL) has just started selling its iPhones at China Mobile, the world's largest carrier with 760 million subscribers. In the worst-case scenario, Mawston said, strong iPhone demand at China Mobile could knock off 1 percent from Samsung's global mobile phone profits this year.

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

Special Report: Wireless in the fourth quarter of 2013

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