Samsung Electronics

Samsung to invest in chips as smartphone growth slows

Korean firm takes aim at low-end market while second-quarter operating profit rises 47.5pc

PUBLISHED : Friday, 26 July, 2013, 11:43am
UPDATED : Saturday, 27 July, 2013, 3:17am

Samsung Electronics announced a US$1 billion increase in investment yesterday, 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 with Apple, 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 and ZTE.

Samsung yesterday reported a 47.5 per cent rise in second-quarter operating profit of 9.53 trillion won (HK$66.5 billion), a record and in line with its estimate.

But profits at its mobile division, which generates two-thirds of 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.

The mobile division's profit was still up 52 per cent year on year but even that fell short of expectations, as slower sales of older 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 Seoul-based KTB Asset Management. "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 but it forecast stronger earnings in the second half thanks in part to its component business, on the back of soaring prices for semiconductors used in personal computers and mobile devices.

Capital spending this year would increase by more than one trillion won to 24 trillion won, and could rise further depending on market conditions, it said. More than 80 per cent of that expenditure would be devoted to chips and flat panels for televisions.

The world's biggest maker of memory chips and televisions said profits from its chip business rose 71 per cent to 1.76 trillion won in the second quarter.