Samsung profit leap threatens Apple

26 April 2013
By Edd Gent
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Models pose with Samsung's S4 smartphone at its launch event at the company's headquarters in Seoul yesterday

Models pose with Samsung's S4 smartphone at its launch event at the company's headquarters in Seoul yesterday

Technology giant Samsung saw profits leap by 41 per cent in the first quarter thanks to a surge in sales of its smartphones.

The South Korean company made a net profit of 7.15tn won (about £4.2bn) for the period, up from 5.05tn won a year ago, in a bitter blow for rival Apple, which this week announced its first profit slide in nearly a decade.

According to the figures released today, Samsung's revenues fell slightly on the previous quarter, down 6 per cent at 52.87tn won (about £30.6bn), though profits were up on the last three months of 2012.

The company's thriving smartphone sector has been behind much of its success with its smartphone and mobile communications sales leaping 7 per cent on the last quarter to 32.82tn won (£19bn), accounting for around 75 per cent of the company's profits.

However Samsung predicted that growth in smartphone sales would stay flat in the coming months amid intensifying competition in the lower and middle sections of the market, before picking up in the second half of the year.

Robert Yi, head of investor relations, said: "We may experience stiffer competition in the mobile business due to expansion in the mid to low-end smartphone market."

Samsung's latest smartphone offering, the Galaxy S4, which goes on sale in the UK tomorrow, allows users to control the screen using their eyes is said to pose the greatest threat yet to Apple's iPhone and is expected to give the company another sales boost.

Samsung's positive results will prove a headache for Apple which earlier this week posted profits of £6.27bn, down £1.38bn from the same time last year.

Jan Dawson, an analyst at research firm Ovum, said Samsung's mobile business performed well in the first quarter of 2013, despite the fact that the previous three months are usually the biggest of the year.

She said: "Certainly it looks like year-on-year growth was much higher for Samsung's mobile phone unit than for Apple's iPhone segment. That's a testament to the broad appeal of Samsung's device range compared with the relatively high-end focus of the iPhone.

"It's also helpful that Samsung has device launches throughout the year, which help to keep demand going on a more consistent basis, whereas Apple suffers from strong seasonality.

"It also increased profits significantly both year on year and quarter on quarter in that business unit, in contrast with Apple, although Apple's margins are likely still much higher in its phone business.

"The next quarter should see a rise in marketing spending around the launch of the Galaxy S4, which may impact margins, though shipments should also go up."

Bryan Ma, from research firm IDC Asia Pacific, said Samsung was doing "very well right now", leading to consumer excitement about its devices and wariness among competitors about what it will do next.

"Some of the initial reviews around the Galaxy S4 might have been a little bit mixed, but nonetheless there is still a lot of excitement around it," he told the BBC.

"I think that with everything we have been seeing from them over the past few months, and more importantly going ahead, they are still the competitor to beat."

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