Early Friday morning, Samsung Electronics announced the financial results for its fiscal Q1 2013, and, as expected, the company had a "pretty darn good quarter." The results stand in rather stark contrast to its fellow South Korean electronics company, LG, which didn't do quite as well with its financial numbers for the same quarter.
Samsung reported revenue of 52.87 trillion won ($47.56 billion) on a consolidated basis for the first quarter ended March 31, 2013, a 6 percent decrease from the previous quarter. Consolidated operating profit for the quarter reached 8.78 trillion won ($7.9 billion), representing a 1 percent decline from the previous quarter. Net profit for the quarter was a solid 7.15 trillion won ($6.4 billion).
Samsung's IT & Mobile Communications (IM) Division led the way, delivering Q1 2013 revenue of 32.82 trillion won ($29.5 billion), a 7 percent increase from the previous quarter, representing 62 percent of all Samsung revenue. Sound sales of Galaxy S III and Galaxy Note II devices aided profit margins for Mobile Communications, but for fiscal Q2 2013 Samsung is forecasting global demand for smartphones to dampen, compounded by heightened competition.
Q1 2013 was difficult for the PC business group, which is part of IM, while the Networks Business -- another part of IM that delivers Long Term Evolution (LTE) and 4G telecommunications equipment, remained stable. But weak markets are not going to slow down the rate of investment Samsung will be making.
Robert Yi, senior vice president and head of investor relations for Samsung, noted that, “Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches.”
Perhaps simply as a hedge, or perhaps in anticipation of Apple delivering some lower end new products (which we doubt Apple will do relative to affecting Q2 2013) Yi cautioned that, “We may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market while TV growth will continue to wane in developed markets.”
Demand for consumer electronics products in emerging markets stemmed further sales losses but weak seasonality and a sluggish economy took their toll on Samsung’s sales of TVs and home appliances. Seasonally low demand for consumer electronics goods during the first quarter corresponded with the Division’s overall sales retreating by 23 percent. In the TV market, demand was down sequentially between the holiday buying season (Q4, 2012) and the current quarter, but improved year-on-year as emerging markets maintained growth.
Samsung's significant overall semiconductor business also remained stable, though there is pressure being exerted due to seasonal market sales slowdowns as well as pressure from declining PC sales. Samsung’s Semiconductor businesses - including Memory and System LSI – posted consolidated 8.58 trillion Won ($7.7 billion) in revenue, an 11 percent drop from the previous quarter earlier. The memory chip unit logged 5.12 trillion Won ($4.6 billion) in earnings, a revenue drop of 4 percent.
Looking ahead, Samsung anticipates smartphone sales to stay flat in the second quarter (similar to Apple's own Q2 2013 guidance) but will pick up again in the second half of the year. As more mid- to low-end mobile devices enter the market and new premium products are rolled out, the race for market share will intensify.
Rugged Versions of Galaxy Devices?
Samsung also appears to be planning to deliver a new tablet and a new smartphone specifically built to withstand harsh environments over the summer, with the tablet arriving as early as June 2013. The ruggedized device market is not a mainstream smartphone or tablet market, and it is hardly clear to us if this is a market that Samsung will have any impact on. It is interesting though to hear that Samsung will at least give it a shot. Samsung continues to look to leave no stone unturned in its quest to deliver products into every conceivable marketing niche.
A ruggedized Galaxy S4 - which is being referred to at this point as the Galaxy S4 Active, could show up in July. We're not quite sure if Samsung truly understands what "ruggedized" means, but the S4 will supposedly be dust and waterproof. Whether it will withstand a drop from four feet without breaking apart is an entirely different issue, and whether waterproof means that it will be safe to use in light rain doesn't mean you will be able to dunk it in a bucket of water. We'll see how it and the tablet shake out on these issues.
What is interesting to us is that in the field, where a ruggedized device is likely to be used, the S4's large 5 inch screen may prove to be an advantage. That said, "in the field" suggests operating outdoors in daylight, where the screen may or may not prove to have enough visibility.
Of course Samsung may in fact be targeting much less harsh environments -- perhaps the retail marketplace, where it would go head to head with established players such as Motorola Solutions (not to be mistaken with Google-owned Motorola Mobility). This is the Motorola group that was once known as Symbol -- a rugged device pioneer. We sincerely doubt Samsung will find an easily conquerable market here.
If Samsung does release a ruggedized set of mobile devices we very likely won't be able to gauge how they perform until at least October 2013. Even more likely it will be January 2014 before we will have any really consequential numbers. Either way, it won't be a market that will drive Samsung earnings in any meaningful way.
Edited by Rich Steeves