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SAMSUNG PROFITS TAKE A HIT

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SAMSUNG PROFITS TAKE A HIT

April 30 2015, 08.30am GMT

STOCK.com

Samsung Electronics Co. continued to struggle during the first quarter of 2015, increasing the stakes for success of its new flagship smartphone, the Galaxy S6.

Samsung Electronics Co. (KRX: 005930), during the first three months of this year, still continued to struggle which was evident from their first quarter earnings report.

Samsung reported on Wednesday that its profits for the first-quarter were $4.3 billion, indicating a decrease of 39% from the previous year. The drop came in lower than the expected 30% according to eight analysts’ forecasts from the Dow Jones (DJIA).

Based on consumers flocking to buy the new iPhone from Apple Inc. (NASDAQ: AAPL) and other brands like Xiaomi Corp from China, Samsung felt the impact of this on its mobile division. The division’s operating profits dropped 57% lower than a year-ago to 2.74 trillion won.

There was some light as the company announced a 10.6% rise in mobile operating profit margins for the first quarter, improving from 2014 last quarter’s margin of 7.5%. Samsung said that this increased margin is due to lower marketing costs and increased midrange smartphone sales.

The strength of the new Galaxy S6 and the Galaxy S6 Edge, its curved screen companion, is tied to the mobile division’s profitability which started selling on the 10th April in 20 countries. Some analysts say that the pair of Galaxy phones could even account for as much as one quarter of the total smartphone sales in the 2nd quarter of this year.

The Galaxy S6 would help in raising margins higher, based on its premium pricing compared to other lower end smartphones from Samsung. The company hinted at improved second quarter earnings as new smartphones sales ramp up, assisting its semiconductor business which supplies the chips used to power the Galaxy S6.

Other analysts estimate 82 million smartphones were shipped in the first quarter. According to Strategic Analytics research firm, this signals a drop from 89 million units that were shipped last year during the same period.

The company’s component business in the last quarter contributed 57% of the operating profits. The company said that as smartphone specifications become more sophisticated, there will be an increased demand for mobile chips.

Chip unit margins climbed upwards to 28.5% due to tight supply and rock solid pricing. This is an increase from 20.8% margin recorded last year in the same period which further indicates a steady increase from an 8.8% low at the start of 2012.

As an extra leg forming from Samsung’s Exynos mobile processors coupled with expected recovery in Apple’s microprocessor demand, margins for the chip unit are set to increase higher later this year with some analysts saying it could top 30%, hitting a 5 year high.

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