Apple litigation And US Delays In Galaxy S3 Shipments Hurt Samsung

Posted by on Jun 29, 2012 | Comments Off on Apple litigation And US Delays In Galaxy S3 Shipments Hurt Samsung

 

FRESH concerns are emerging about Samsung Electronics’ business outlook as the world’s biggest handset maker copes with delayed shipments of its new flagship smartphone in the US and intensifying competition in the low-end smartphone market in China.

Until recently, there were few doubts over the South Korean electronics giant’s performance. In late April, Samsung, which makes consumer products as well as chips and other components, reported a record quarterly net profit of $US4.38 billion for the first quarter on robust sales of smartphones. Expectations have been high for the Galaxy S III, a new flagship smartphone with a 4.8-inch screen and voice and facial recognition capabilities.

But the Galaxy S III launch, which represents Samsung’s latest effort to take on Apple’s iPhone, has been delayed in the US.

The new smartphone, which runs on Google’s Android operating system, will be sold by all four major US carriers — AT&T, Verizon Wireless, T-Mobile USA and Sprint Nextel– but availability

Sprint had originally set the release date to June 21, but pushed back the launch to July 1 on Wednesday. Verizon hasn’t made the phone available yet and T-Mobile only has limited supply in its stores. AT&T cited “manufacturer supply constraints” for continued delays of pre-order shipments and won’t comment on when the device will be available in stores.

On Monday, Samsung shares plunged 4.2 per cent on heavy volume wiping about $US6.4 billion off the company’s market capitalization, after several South Korean brokerages cut their second-quarter operating profit estimates citing weaker-than-expected smartphone sales and a slow recovery in chip prices.

While the stock has since rebounded, rising 0.6 per cent on Tuesday in the US, 2.5 per cent on Wednesday and another 0.1 per cent on Thursday, questions remain over Samsung’s performance in the second quarter that ends Saturday. Samsung is expected to release its own second-quarter earnings estimates in early July.

A Samsung spokesman said that the delayed Galaxy S III shipments in the US are not due to shortages of specific components such as chips and screens. “Our supply (of the Galaxy S III) hasn’t been able to meet the soaring demand, but the situation will improve soon,” he said.

Barclays, despite cutting its second-quarter sales forecast for the Galaxy S III, raised its third-quarter sales forecast to 15 million units from 14 million. “We are convinced that the company’s earnings cycle is still far from the peak,” said the brokerage, which maintains an Overweight rating on Samsung.

Barclays Capital Tuesday lowered its second-quarter shipment forecast for the Galaxy S III phone to 6.5 million units from 8 million units.

On Wednesday, Samsung faced yet another potential setback in the US, when a California judge issued an injunction banning sales of the company’s Galaxy Tab 10.1 touchscreen tablet at the request of Apple. The US. is one of Samsung’s biggest markets, even though tablets account for a small portion of its revenue.

Some analysts are also citing uncertainties in the fast-growing market for low-end smartphones, particularly in China. Analysts at some of the South Korean brokerages that lowered second-quarter earnings estimates said that an increasing number of Chinese companies selling inexpensive smartphones could pressure profit margins for Samsung’s low-end models.

“Price competition has intensified in China recently, because low-end smartphone makers are rapidly penetrating the market with phones that cost under $100,” said Korea Investment & Securities analyst Seo Won-seok.

Still, despite the emerging concerns, most analysts continue to expect robust earnings from Samsung in the second half of the year thanks to full contribution from Galaxy S III sales.

“The market got somewhat carried away and set the expectations (for the second quarter) too high” after seeing the record first-quarter profit, said Sanford Bernstein analyst Mark Newman. While the expectations are now being “slightly reset,” the longer-term outlook for Samsung remains positive, he said.

As long as sales remain strong for lucrative high-end smartphones like Galaxy S III, the price competition in the low-end segment in China won’t be a major problem, because Samsung’s handset earnings rely far more on high-end models, analysts added.

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