Samsung sees tough outlook, Q1 hits 2-year low on TVs

By Miyoung Kim

SEOUL (Reuters) - Samsung Electronics faces a challenging outlook after reporting its third consecutive fall in quarterly profit as it struggles to make ground on Apple Inc and faces a tepid recovery in its TV and flat screens business.

The world's No.2 handset maker, however, said its mainstay memory chip business was rebounding after Japan's devastating earthquake and tsunami in March hobbled production from rivals including Toshiba Corp.

"Its race with Apple seems pretty difficult and income in its display division is in a slump."

Samsung's Galaxy model smartphones and tablet computers were

seen among the biggest potential rivals to Apple's iPhone and iPad but it has been unable to match the U.S. company's roaring sales growth.

Sony plans to soon join the fray with the launch of its first tablets in a market set to quadruple in four years.

Samsung also world's largest top maker of memory chips, flat screens and televisions. Shares in the company, whose $136 billion market value is bigger than Sony, Nokia, Toshiba Corp and Panasonic Corp combined, were down 1.7 percent by 0425 GMT in a broader market down 1.2 percent.

After hitting life-time highs late January, Samsung shares have lost 13 percent, as analysts lower expectations for its telecoms division, which includes smartphones and tablets.

Samsung reported a 2.95 trillion won ($2.75 billion) operating profit for January-March compared to the consensus forecast for a 3.1 trillion won profit by Thomson Reuters I/B/E/S. That was in line with Samsung's estimate for an operating profit of between 2.7 trillion won and 3.1 trillion won.


Samsung, which had negligible share of the smartphone market until early last year, has muscled in with its Galaxy models. It has since sold 14 million Galaxy S smartphones and launched the Galaxy Tab tablet in three different sizes.

This week, it rolled out a new version of its flagship Galaxy S smartphone in Korea and expects the model to sell more than 10 million units as the product makes a global debut from May through 140 carriers in 120 countries.

SK Telecom, South Korea's top mobile carrier, said on Friday it had received 160,000 preorders for the new Galaxy smartphone since it started taking orders on Monday and expects 60,000 customers will get the phone on Friday and Saturday when it launches service.

Apple is seeking to keep Samsung at bay with lawsuits claiming Samsung's Galaxy line of phones and tablets "slavishly" copy the iPhone and iPad.

Samsung has countersued and on Wednesday, it broadened a patent dispute against Apple by filing a lawsuit in federal court in California arguing that Apple's iPhone, iPod and iPad had infringed 10 mobile technology patents. Samsung made similar claims in Korea, Japan and Germany last week.

Samsung sold around 70 million handsets in the first quarter including tablets. It did not give breakdowns and analysts estimate it sold around 1 million tablets. Apple sold 4.7 million units of its iPad last quarter.

Soaring demand for tablets and smartphones is likely to fuel further growth at its semiconductor business, as Samsung counts Apple as its core clients. Prices of computer memory chips have rebounded since last month's earthquake in Japan.

"I expect Samsung's operating profit to strongly rebound in the second quarter... Chip profits will be pretty good in the second quarter because of the rise in average sales prices," said Kim Sung-in, an analyst at Kiwoom Securities.

Samsung's profit is expected to rebound by a third to 4 trillion won in the current quarter, according to StarMine SmartEstimates, which places more weight on recent forecasts by top rated analysts.


Samsung said the chip market would improve slightly in the current quarter and demand for NAND flash chips would also sustain growth momentum thanks to solid smartphone and tablet markets.

The first-quarter operating profit, the lowest since the second quarter of 2009, compared with a 3.0 trillion won profit in the preceding quarter and 4.4 trillion won a year earlier.

Semiconductor and telecoms were the main profit pillars in the first quarter. Operating profit from semiconductors accounted for 56 percent of the group's total profit and the rest came from the telecoms division.

Its television and appliances unit reported an 80 percent drop in profit to almost breakeven, while the flat screen division swung to a 230 billion won loss from a 490 billion won profit a year ago.

Sales of flat-panel TVs edged up 5 percent from a year ago but tumbled 31 percent from the previous quarter to 8.8 million units.

From Sony to Dutch electronics group Philips, TV makers are struggling with fierce competition from cheaper brands and fragile consumer spending.

(Additional reporting by Ju-min Park, Hyunjoo Jin and Yerim Kim; Editing by Jonathan Hopfner and Anshuman Daga)