Despite slowing sales, Samsung’s mobile division posts a positive start to the year

by: Robert TriggsApril 29, 2014
samsung galaxy logo 2

Samsung’s financial results for the first quarter of 2014 have just been published, overall the company is looking as sturdy as always.

The technology giant announced revenues of 53.68 trillion Korean won (52 billion USD) from January to March this year, resulting in a total operating profit of 8.49 trillion won ($8.24 billion) for the first quarter of the year. Looking more specifically at the IT & Mobile Communications (IM) division, which consists of the Mobile Communications and Networks operation responsible for smartphones, the department posted an operating profit of 6.43 trillion won ($6.24 billion) from 32.44 trillion won ($31.49 billion) in revenue. The mobile business alone accounted for 31.36 trillion won ($30.44 billion) of this income.

Samsung Figures Q1 2014

One other noticeable achievement for the company over the quarter came from Samsung’s memory chip business, which accounted for the bulk of the semiconductor department’s 9.39 trillion won in revenue, with memory revenues totalling 6.29 trillion. This helped Samsung’s semiconductor unit’s operating profit margin leap to 20.8%, up from 12.5% a year ago.

So how is the company faring compared with the previous couple of years? On the whole, Samsung is looking very steady, performing on par with previous results at this time of year.

Samsung Q1 2014 Sales Revenue

Quarter on quarter, Samsung’s total sales revenue dropped from 59.23 trillion won to 53.68 trillion, a decline of 9.5 percent, but this was to be expected during the new year lull. Operating profit was quite flat at 8.49 trillion last quarter, compared with 8.31 trillion won in Q4 2013. Compared with Q1 2013, sales revenue was up by 1.5 percent whilst operating profit was down by 3.3 percent.

Turning again to Samsung’s IM division, quarter on quarter profit results defied the general company trend. Although sales revenue experienced a similar first quarter dip to the rest of the company, down 4.3 percent, operating profit leapt up by 17.55 percent to 6.43 trillion won, from 5.47 trillion at the end of last year. Compared with the same period last year, revenue and sales for the IM division were virtually flat.

Samsung Q1 2014 Operating Profit

Although market demand for both smartphones and tablets decreased slightly during the first quarter, the boost to operating profits for the IM division aren’t so surprising. Samsung has been making a conscious effort to be more efficient when it comes to marketing expenditures.

Importantly, this data doesn’t take into account the launch of Samsung new flagship Galaxy S5, the device’s April 11th release date fell just after the last reported quarter. Early indications suggest that the handset has made a strong start, and company executives are hoping for a “slight” increase in quarterly sales for smartphones and tablets come June.

After another quarter of decent profit, Samsung’s cash pile has now swollen to 61.5 trillion Korean won ($60 billion).

Smartphones sales decline slightly

The other half of the story comes from market research firm Strategy Analytics, which has conducted its own investigation into the number of units that Samsung has shipped (Samsung does not publish its own sales numbers). The company’s results show that Samsung shipped around 89 million units in the first quarter. It also found that Samsung’s first quarter smartphone market share, in terms of actual units sold, slipped slightly to 31.2 percent from 32.4 percent. Even so, Samsung still controls the dominant position in the smartphone market, followed by Apple on 15.3 percent, followed by Huawei and Lenovo on 4.7 percent each.

Samsung stated that its profit margin on smartphones was unchanged from a year earlier at 19.8%, confirming the suspicion that sales are declining slightly. This assumption is reflected in the declining revenue for the IM division over the past two quarters. Analysts suggest that margins could face more pressure in the near future as competition from cheaper Chinese manufacturers intensifies.

oneplus one vs galaxy s5 aa (7 of 12)

Cheaper high-spec smartphones, like the new OnePlus One, could pose a serious threat to Samsung’s more expensive flagship models over the next year.

As we’ve covered before, Samsung’s bottom line is also benefiting from the scaling back of the company’s advertising budget. Instead, the company is planning more promotions that directly link to sales, as opposed to bigger, broader message marketing.

Despite the increasing competition on price at the high-end, Samsung executives stated that the company has no immediate plans to focus its efforts on the low-end smartphone market, although they do see potential in emerging markets for sub $100 handsets. Instead, Samsung plans to eventually brings its flagship technological advances into mid and low tier devices over time.

What’s next for Samsung?

Samsung appears to be off to a good start to the year. So far, managing to offset the stall in mobile sales, by making savings in other costs, has helped the company’s mobile division to post an exceptionally strong start to the year. However, it’s unlikely that such a plan would be sustainable in the long term.

As Samsung seems opposed to going after cheaper markets for now, perhaps we will see additional Samsung flagship models released this year to help sustain moment and market presence, and to compensate for smaller advertising budgets and increased competition. Samsung is also likely betting on its early investments into the wearable market to help offset the stagnating premium smartphone market.

It will be interesting to see what shape Samsung is in once it publishes sales revenues for the next quarter, which will take into account the launch of the Galaxy S5.

  • olivianew

    despite the costs and one division (display?) doing poorly, they still managed to get a higher net profit than last year. maybe they managed to control their spending more

  • Daniel D

    I think Oppo 1+1 is more of a threat to Samsung. Not HTC plastic phone.

    • Bryan Z

      HTC plastic phone could be a threat, if they have as much money to dump into advertising like samsung does

      • Daniel D

        What are they going to advertise for? The incredible 4mp camera?

  • bob

    samsung shipped 2x more phones than apple, yet earned half as much. while in the meantime, all other oems are in red. nice competition over there in the android world. in other industries this is called, in this industry its called ‘android conquering market share’

    • bob

      *price dumping

    • jake

      Earned half as much? Samsung net profit is more than 7 billion while apples is 10 billiom. Samsung has bigger revenues but they out spend apple too by a big margin hence less profits

      • bob

        samsung mobile, think a bit

    • Bryan Z

      That’s without mentioning how Samsung spends about 5 times in marketing compared to apple but what kind of bothers me most is how they never show how their phones are Android phones in all the advertising they do.

  • They’re under considerable scrutiny to consistently perform better than the market. They’ve got the most diverse mobile device portfolio in the world, arguably a stranglehold on AMOLED technology (LG is up and coming) and they’re now focused on growth in audio.

    I think Samsung produces great stuff; their displays are second to only perhaps LG, and they are legitimately listening to their customers. Most importantly – they need to produce a true flagship device that appeals to those that appreciate the iPhones form factor, and one that is a true embodiment of higher build quality – even if the profit margins aren’t there.

    • Bryan Z

      I somewhat disagree with you on that they need produce a flagship device that appeals to those who appreciate the iPhones form factor because a lot of people that buy Apple product buy into their “ecosystem” which Samsung doesn’t really have until they release Tizen (I’m excited about a tizen phone in the US) but most important they already have a great smart phone they should focus on more than the galaxy s6 and thats the notes, I personally think that’s an amazing device that creates a lot of contrast to pull people away from buying an iPhone plus it’s much more elegant than a Galaxy S5.

      • jay

        Time is indeed interesting i wonder how optimised it will be for samsung phones as well as other oems who are a part of tizen

        • Bryan Z

          indeed, Samsung obviously wants to move forward with tizen more than android but I not sure they can pull it off. Most app developers don’t even make apps for windows mobile, I doubt they are going to try to spend their resources to make a tizen version, but hopefully samsung can spend some solid money to get all these devs to make apps

  • mikegonzalez2k

    One Android company can produce almost the identical revue as Apple. Clearly Android has more total revenue than iOS.
    Just think if this comparison was to take a summation of the revenue and profit from HTC, LG, Motorola, and Sony.

    Compare their total against 1 single company (Apple). Apple would definitely lose that fight.

    Also, Q2 2014 should be much higher since the GS5 was released in Q2, and from what I can tell it one of the hottest items out right now.

    • “Samsung has the lead in smartphone sales, commanding 32.2% of unit sales in the first quarter, followed by Apple with 16.2%.

      But Apple leads in profits, raking in 65% of smartphone industry profits. Samsung garnered 41% of the profits, Walkley said.”

      Now, I’m an Android guy (Galaxy S5)–but I’m pretty sure Apple isn’t crying over spilled milk.

      • mikegonzalez2k

        I’m not sure I’d trust Walkley’s math. After all you can’t have more than 100% of the profits.
        65% + 41% = 106%

        Not to mention that this does not take into account the profits made by all other smartphone companies.
        Nokia, HTC, LG, Sony, Motorola… etc.

        These numbers from a purely mathematical standpoint do NOT make sense. Which makes me speculate they were trying to convince investors to lean towards Apple rather than showing actual mathematical distribution.

        • Read the article–he explains how you can have such numbers.