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Samsung Electronics tips pickup as first quarter profit matches guidance

A man using his mobile phone walks past a Samsung Electronics shop in the company's main office building in central Seoul July 23, 2013. REU
A man using his mobile phone walks past a Samsung Electronics shop in the company's main office building in central Seoul July 23, 2013. REU

SEOUL (Reuters) - Samsung Electronics Co Ltd reported its second straight fall in quarterly profit on Tuesday, as weakness in flat-screen panels and the maturing high-end smartphone business weighed on the South Korean giant's earnings.

But the company said the football World Cup in Brazil should help boost sales of screens and smartphones in the current quarter, as fans invest in fancy gadgets to watch the action.

The world's biggest smartphone maker is also banking on its flagship Galaxy S5 handset, launched in April, to outsell its predecessor and widen profit margins, a senior executive told Reuters earlier.

For January-March, South Korea's largest company by market value said operating profit fell 3.3 percent from a year earlier to 8.5 trillion won ($8.2 billion), versus guidance of 8.4 trillion won.

Profit in the mobile division reached 6.43 trillion won, down 1.2 percent from a 6.51 trillion won profit a year earlier.

"Samsung is expected to see profits rally in the second quarter and beyond, on the back of improved sales of display panels and home appliances," Samsung said in a statement.

"Orders for display panels that are used for premium smartphones and TVs are expected to increase, as new mobile devices are rolled out into the market and as consumers look forward to the upcoming World Cup in Brazil."

Even so, Samsung could be heading for its first annual profit fall in three years as margins tighten across the product line, analysts say. As growth in Samsung's core high-end smartphone business eases in wealthy countries, the battle is shifting to cheaper, narrow-margin phones in emerging markets.

Shares of Samsung Electronics, worth $220 billion, climbed 0.3 percent after the results, in line with a 0.3 percent rise in the benchmark Korea Composite Stock Price Index.

Samsung's mobile business is poised for an uncertain 2014, analysts say. Its broad range of low-end phones are being caught by the improving quality of Chinese-made offerings, while the large-screen advantage of its top-range phones could be countered by new models from Apple Inc.

Any further decline in profitability could increase pressure from shareholders to produce a new growth engine or increase payouts.

Samsung's flat-screen panels business ran an 80 billion won loss during the January-March period, compared with a 770 billion won profit a year earlier, as weaker global sales weighed on prices.

The company also cited higher costs stemming from an increase in production in China as a reason for the earnings slump in the panels business.

In the chip business, profits rose 82 percent from a year earlier to 1.95 trillion won, in line with similarly strong results from rivals such as SK Hynix Inc thanks to solid demand from PC makers and tight supply.

(Reporting by Se Young Lee; Editing by Stephen Coates)

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