Smartphone Makers Get Squeezed -- WSJ
April 29 2016 - 03:03AM
Dow Jones News
Market saturation in developed economies and fierce competition
weighs on companies
By Jonathan Cheng and Min-Jeong Lee
SEOUL -- Earnings reports this week may toll the bell for the
decadelong smartphone bonanza.
Samsung Electronics Co., the world's biggest smartphone maker by
shipments, reported strong mobile-profit gains Thursday -- but
goosed the results by pushing up the release of a new flagship
model. Also Thursday, crosstown rival LG Electronics Inc. reported
the third straight quarterly loss for its mobile division. Even
Apple Inc., the world's most profitable smartphone maker by a wide
margin, earlier this week reported an earnings drop from a year
earlier and its first revenue decline in 13 years as iPhone sales
turned sluggish.
LG is counting on its new flagship G5 smartphone, which went on
sale earlier this month, to drive market share and earnings gains,
but makers are running into a new reality: For the first time, the
global market is shrinking, according to research firm Strategy
Analytics, which puts first-quarter smartphone shipments at 335
million, down 3% from a year earlier. Calculations by another firm,
IDC, show growth, but barely -- 0.2%.
Saturation in developed economies and rising competition in
emerging markets like India, Indonesia and Latin America is
squeezing out weaker players and pressuring the profits of those
that remain.
The pain has spread to component makers. Sony Corp.'s device
unit, whose products include image sensors for smartphones, on
Thursday posted an operating loss of Yen28.6 billion ($264 million)
for the year ended March, after a year-earlier profit of Yen89
billion. The company now regards the smartphone business as "a
low-growth industry," Chief Financial Officer Kenichiro Yoshida
said.
"We have overestimated demand," he said.
While the Samsung mobile unit's first-quarter operating profit
was up 42% from a year earlier -- the biggest jump since the second
quarter of 2013 -- and its margin rose to 14% from 11%, analysts
seemed unmoved. In the medium term, Samsung will struggle to keep
up its earnings growth, said Shelley Jang, Seoul-based director of
credit-rating company Fitch Ratings.
"Smartphones are now commoditized," she said in a note to
clients. "Everyone has one, even in developing countries."
Samsung's smartphone recovery "is likely to be short-lived," she
added, pointing to "ever-increasing competition and narrowing
product differentiation as lower-cost competitors' handsets
improve."
Investors were similarly skeptical, pushing Samsung shares down
2.7%, its biggest one-day decline in nearly a month.
Samsung pushed up the release of its well-received flagship
Galaxy S7 smartphone, boosting its first-quarter impact. Last
year's release of the Galaxy S6 came nearly a month later.
Carrier partners promoted the Galaxy S7 aggressively --
particularly the curved-screen variant the Galaxy S7 Edge, which
was "sold out almost immediately upon arrival" in the U.S., China
and the Middle East, according to Lee Kyeong-tae, Samsung's vice
president of mobile communications.
More-sobering results could come as soon as the next quarter or
two for Samsung as the market becomes crowded with more rival
products and it lacks a new flagship phone to drive excitement. And
the South Korean won, whose weakness benefited Samsung's
first-quarter export earnings, is expected to continue
strengthening.
Unlike in recent quarters, Samsung won't get a reprieve from its
semiconductor business; fears of an industrywide glut of memory
chips and cooling demand sent it to its first year-over-year
decline in more than three years. The chip business's contribution
to the company's bottom line fell to its lowest level in nearly two
years.
Overall, net profit for the first quarter was up 14% from a year
earlier to 5.3 trillion won ($4.6 billion), after a drop of 40% the
quarter before. The mobile division's operating profit was 3.9
trillion won.
The chip unit's operating profit was off 10% to 2.6 trillion
won, with margins squeezed to 24%. At their peak, the unit's
margins ran as high as 30%.
In a separate statement Thursday, Samsung said that it would
start the third phase of a previously announced 11.3 trillion won
share-buyback program. Over three months starting Friday, the
company will purchase and cancel 2 trillion won worth of
shares.
--Takashi Mochizuki in Tokyo contributed to this article.
Write to Jonathan Cheng at jonathan.cheng@wsj.com and Min-Jeong
Lee at min-jeong.lee@wsj.com
(END) Dow Jones Newswires
April 29, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Feb 2024 to Mar 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Mar 2023 to Mar 2024