Samsung Electronics (PINK:SSNLF) is expected to announce its Q1 2013 results on April 26. The electronics giant has already given a sneak peek into its earnings earlier this month, announcing that its operating profits grew over 50% y-o-y, to 8.7 trillion Won ($7.7 billion) during the holiday quarter. While the divisional operating figures were not released, we expect a majority of its profits to have come from the mobile division driven by the growing popularity of the Galaxy S series of smartphones as well as the Galaxy Note phablets.
With competition increasing on the high-end of the smartphone market, Samsung will probably look to increase traction for its mid-tier smartphones such as the Rex and Galaxy Pop, to keep the momentum going. The burgeoning demand for mobile devices is likely to have propped up the display and chipset divisions as well, helped along by a potential recovery in chipset prices.
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Samsung’s High-end Mobile Statement
The past year has seen Samsung gain a lot of the smartphone market share. The release of Galaxy SIII last year saw Samsung take a decisive lead in the smartphone market, selling almost 50% more smartphones than Apple did during the year. For the full year 2012, Samsung accounted for more than 30% of the smartphone sales worldwide, increasing its lead over Apple whose market share remained stagnant at about 20% y-o-y. From a primarily feature phone player, the company has gone on to become the biggest smartphone maker with smartphones accounting for almost 54% of its sales in 2012, up from about 28% in 2011. We believe that the big market share gains that Samsung has achieved in the recent years is for the most part a result of the number of low-end Android smartphones it has flooded the markets with, both in emerging as well as developed markets.
However, Samsung’s superiority in the low-end smartphone market was long foreseen, considering the company’s scale and market flooding strategy it has employed right from the start. However, what is relatively new is that it has managed to leverage the huge following garnered with the wide array of Android choices, to start challenging Apple in the high-end of the smartphone market. At about 33.5 million units each, the high-end Galaxy S3, sold nearly as much as the iPhone 5 or the 4S did in the last two quarters combined.  In the first three months following the S3 launch last year, Samsung racked up almost 20 million unit sales – a figure that it had managed with the previous generation S2 only after more than thrice as many months.
What makes Samsung’s ascent even more extraordinary is that the Galaxy S series is only in the third-generation, compared to the iPhone 5 which is a fifth-generation product – meaning that Samsung had a comparatively smaller base of Galaxy owners to upgrade than Apple had with the iPhone. The incredible success that Samsung has had with the flagship Galaxy S, points not only to the rapid pace of growth in smartphone sales worldwide, but also to the company’s growing presence in the high-end smartphone market – a segment that has long been Apple’s hegemony.
With the Galaxy S4 soon to be launched, we expect Samsung to carry the momentum into the coming quarters as well and also challenge Apple in the U.S. market. However, competition in the high-end market is increasing with Nokia and BlackBerry making reinvigorated moves to reclaim lost ground. Samsung will also be looking to maintain the momentum by increasing traction for its mid-tier smartphones in the emerging markets.
Chipset To Ride Mobile Growth
The smartphone market has showed significant growth in the recent years. Gartner estimates that almost 675 million smartphones were shipped worldwide last year, a growth rate of more than 43% over 2011. A consumer shift towards smartphones continues to be strong despite some lingering macroeconomic uncertainty, and it is likely that the momentum will push the smartphone market closer to the 1 billion mark by the end of 2013. At the same time, the growth of other mobile devices such as tablets is picking up serious momentum. IDC estimates that tablet sales grew by over 65% in 2012, to 117 million units, and will continue to grow rapidly for the next few years to reach about 260 million unit sales by 2016. 
Given the high growth rates being seen, we expect Samsung’s chipsets division to benefit hugely from the ongoing transition to mobile. A big reason for this optimism is that Samsung is increasingly using its own chipsets in its smartphones. For example, the highly popular Galaxy SIII and Note II use its Exynos line of app processors, which the company is looking to use in its forthcoming Galaxy S4 (the international version) as well. Even otherwise, Samsung’s NAND flash memory chipsets find a place in almost 38% of all devices or memory cards that use flash. In addition, there are signs that chipset prices are recovering after a two-year decline. However, Apple’s decision to gradually move its component orders away from Samsung could have an adverse impact if Samsung doesn’t manage to make up for that loss with sales to its own smartphone division.Notes:
- Apple iPhone 5 Overtakes Samsung Galaxy S3 to Become World’s Best-Selling Smartphone Model in Q4 2012, Strategy Analytics [↩]
- IDC Raises Its Worldwide Tablet Forecast on Continued Strong Demand and Forthcoming New Product Launches, IDC Press Release, September 19th, 2012 [↩]