Samsung to invest $1 bn in chips, panels as smartphone outlook dims

Jul 26 2013, 10:29 IST
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Research firm Strategy Analytics said Samsung sold 76 million smartphones in the second quarter. Research firm Strategy Analytics said Samsung sold 76 million smartphones in the second quarter.
SummarySamsung sold 76 million smartphones in the second quarter to take 33.1 per cent of the market.

Samsung Electronics Co Ltd announced a $1 billion increase in investment on Friday, hoping a strong recovery in semiconductors will make up for weakening smartphone growth as it faces mounting pressure to produce eye-catching new gadgets.

The high-end smartphone market, which Samsung dominates along with Apple Inc, is slowing and the South Korean giant is struggling to convince investors it can crack the rapidly growing low-end segment, where its rivals include China's Huawei Technologies Co Ltd and ZTE Corp.

Samsung on Friday reported a 47.5 per cent rise in April-June operating profit of a record 9.53 trillion won ($8.54 billion), in line with its estimate.

But profits at its mobile division, which generates two thirds of its total earnings, slipped 3.5 per cent from the previous quarter even with the launch of its flagship Galaxy S4 in late April, sparking concerns its mobile growth momentum may have stalled as competition intensifies.

Executives offered little to give investors hope that a new market-shifting breakthrough in high-end smartphone technology is around the corner, fueling uncertainty over a segment which appears to have peaked in the first quarter after driving a series of record profits for Samsung in recent years.

Mobile division profit was still up 52 per cent from a year ago but even that fell short of expectations, as slower sales of old models like the S3 and the marketing bill for the S4 took their toll.

"It is clear that the global smartphone market is stalling because of the slowing growth of high-end smartphones and rising competition from lower-priced smartphones," said Ahn Young-hoe, a fund manager at KTB Asset Management, which owns Samsung shares.

"There is no major momentum for Samsung. The key is whether Samsung, which sources smartphone parts in-house unlike Apple, will be able to cut parts costs and increase volume and market share to offset reduced smartphone margins."

Samsung warned that global smartphone sales growth could weaken further in the third quarter, and said it expected stiffer competition due to new product launches. Apple is expected to release the iPhone 5S and a low-end iPhone later this year.

"As we go into a typically strong season for the IT industry, we expect earnings to continue to increase," Samsung said in its earnings statement.

"However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products."


Samsung forecast stronger earnings in the second half thanks in part to its

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