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Samsung Posts Higher Sales, Net Profits

Seoul, South Korea — Samsung Electronics reported slightly higher sales and net profits year on year in the first quarter, ended March 31.

Revenues were 53.68 trillion Korean won on a consolidated basis, compared with 52.87 trillion won year on year.

Consolidated net profits in the quarter were 7.57 trillion won, up from the prior year’s 7.15 trillion won. Operating profits were 8.49 trillion won, down from the prior year’s 8.78 trillion won.

Although market demand for electronics devices such as smartphones and tablets in the January through March quarter is traditionally slow, profit margins for Samsung’s IT and mobile communications (IM) division were driven by strong demand for smartphones and efficient management of marketing expenses, as well as a net positive impact from adjustments to reserve items that accounted for 1 percent of the mobile unit’s revenue, the company said.

Samsung is expected to see profits rally in the second quarter and beyond, on the back of improved sales of display panels and home appliances, the company said.

Orders for display panels that are used for premium smartphones and TVs are expected to increase, as new mobile devices are rolled out into the market and as consumers look forward to the upcoming World Cup in Brazil. The outlook for household appliances will also pick up on seasonal demand for air conditioners, as well as orders for high-end TVs based on the World Cup effect, Samsung said.

The company commented it is poised to expand its new product categories such as wearable devices, strengthen its B-to-B business footprint through Knox and in the education market, and make advancements in its ecosystem for device connectivity.

“While developed markets are expected to lead global economic recovery, macroeconomic uncertainties, such as currency fluctuation in emerging markets due to QE tapering in the US, are expected to continue in 2014,” said Robert Yi, senior VP and head of investor relations; however, he noted, “We expect our overall earnings to improve starting from the second quarter, driven by improvements in the display panel segment and the consumer electronics division in conjunction with steady growth momentum in mobile and memory businesses.”

The display panel segment posted revenues of 6.1 trillion won in the first quarter with an operating loss of 80 billion won amid traditionally weak seasonal demand.

During the first quarter of 2014, the overall LCD market experienced an on-quarter decline in demand for TV and tablet panels as product makers reduced orders. For Samsung, earnings were impacted by cost increases related to the ramp-up of production in China coupled with the decline in ASP.

Looking ahead, the LCD panel market is likely to improve due to increased demand for TVs related to the World Cup, and declines in ASP are expected to abate. Samsung expects increased shipments of both mass-market panels as well as premium products, such as curved panels, to drive growth while expansion of the Ultra HD TV market should lead to improved profitability.

For OLED panels, weak seasonal demand led to a decline in sales for the first quarter. Concerning the outlook for the second quarter, Samsung expects to increase shipments of larger and higher resolution panels for tablets and mass-market smartphone lineups. The company will also focus on leading innovation in the production of flexible panels and expanding the applications of OLED to the emerging wearable devices category.

The IT division posted operating profits of 6.43 trillion won on 32.44 trillion won in revenue for the March quarter. Out of the total IM earnings, the mobile business was responsible for 31.36 trillion won.

Although market demand for both smartphones and tablets decreased during the first quarter, operating profits for the IM division jumped 18 percent compared with the previous quarter thanks to steady smartphone shipments, efficient execution on marketing expenditures and a positive impact from adjustments of one-off expenses.

Samsung said it continued to see solid sales of Galaxy S4 and Galaxy Note 3 while also strengthening its premium product portfolio through the introduction of a new flagship smartphone, Galaxy S5.

Looking at the tablet business, the company maintained solid tablet sales momentum by shipping nearly 13 million units during the slowest quarter and reinforced its mid to high-end lineup, including launches of the premium Galaxy Note Pro and Galaxy Tab Pro devices equipped with 12.2-inch displays, office functionalities and PC-level performance.

The consumer electronics division — encompassing the visual display, digital appliances, printing solutions, and health and medical equipment businesses — posted an operating profit of 190 billion won for the quarter on revenues of 11.32 trillion won. The visual display business accounted for 7.39 trillion won of earnings.

Seasonally low demand for consumer electronics goods during the first quarter corresponded with the division’s overall sales retreating by 21 percent on-quarter. Despite challenging conditions in the TV market, Samsung outperformed the market thanks to increased sales of premium products, including Ultra HD TVs.