Samsung’s Better Than Expected Q1 Guidance Indicates That It Could Be Turning The Corner

Samsung Electronics (PINK:SSNLF) published its preliminary Q1 2015 earnings on Tuesday, April 7, indicating that its operating profit likely fell by about 30% year-over-year to 5.9 trillion won (about $5.4 billion), while revenues fell by about 10% to about 47 trillion won (about $43 billion). ^[1] While this represents the sixth consecutive year-over-year decline in quarterly profit, the numbers were better than expected and could indicate that the company’s profit slide is moderating. Analysts surveyed by Thomson Reuters were expecting a consensus operating profit of about 5.3 trillion won (about $4.84 billion). The company typically releases final Q1 figures towards the end of April.

Although Samsung didn’t break out any numbers, we believe that much of the decline is likely to have come from the smartphone division, which has ceded significant share to Apple as well as lower cost vendors over the past year.  During Q4 2014, Samsung held about 20% of the global smartphone market, down from about 29% a year ago, while Apple significantly closed the gap with a 19.85% share. ^[2] However, we believe that the weakness in smartphones is likely to have been partially offset by a better performance by the semiconductor division, which has been seeing its fortunes rise on the back of strong demand and ASPs for memory products as well as an ongoing ramp-up of a new logic-chip manufacturing process.

Trefis has a $1,285 price estimate for Samsung Electronics, which is about in line with the current market price.

See our full analysis for Samsung Electronics

Galaxy S6 Should Help Smartphone Division Turn The Corner

We believe that Q2 2015 will be a significantly stronger quarter for the company, as its new flagship Galaxy S6 and S6 Edge devices will hit stores on April 10. If the largely positive first reviews of the S6 are any indicator, Samsung may have a hit device in its hands. The company has made some relatively small, yet meaningful strategic decisions to improve margins and product differentiation in a crowded smartphone market. For instance, design is a key selling point of the new handsets, which will feature an all metal and glass enclosure, marking a departure from Samsung’s signature plastic handsets. Samsung has also made improvements on the software front, by streamlining its Touchwiz user interface and removing many of its oft-criticized proprietary applications.

The S6 is also outfitted with technology that will support Samsung’s new mobile payment service Samsung Pay, a competitor to Apple Pay, which is expected to roll out in the United States and South Korea this summer. Samsung has also dropped the Micro SD card slot (for user-expandable memory) on the device, in a move that could steer customers towards higher margin high-capacity offerings. Internal expectations for the device appear to be high, and the company is reported to have recently raised production targets following strong consumer interest and pre-orders. The total supply of the devices available over the launch month could be around 13 million units (related: Mobile Weekly Notes: Apple and Samsung). For perspective, Samsung shipped roughly 12 million units of the Galaxy S5 and 16 million units of the Galaxy S4 during the first three months post-launch.

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1. Samsung Press Release [↩]
2. In a Near Tie, Apple Closes the Gap on Samsung in the Fourth Quarter as Worldwide Smartphone Shipments Top 1.3 Billion for 2014, IDC, January 2015 [↩]