Samsung forecasts first annual profit fall in 3 years for 2014

Samsung Electronics, the South Korean technology major, on Thursday confirmed expectations for its first annual profit decline since 2011, although a pickup in the fourth quarter hinted that earnings may have stabilised in the short term.

Samsung said its fourth-quarter operating profit is likely to be 5.2 trillion won (US $4.74 billion), beating a mean forecast of 5 trillion won from a Reuters survey of 44 analysts.

The outlook means Samsung's 2014 profit will probably be 25 trillion won, the weakest in three years, although it marks a rebound from the third-quarter's 4.1 trillion won profit which was the firm's lowest quarterly result in more than three years. The company is expected to release its annual corporate results around the end of January.

The global smartphone leader lost market share for three consecutive quarters up to the three month period ending September 30, 2014, and analysts say the trend likely continued in the October-December quarter thanks to competition from Apple's new iPhones and cheaper Chinese rivals like Xiaomi.

Still, expectations of healthy memory chip demand and improvements in the company's mobile business on the back of new mid-to-low tier smartphones are buoying hopes that Samsung has at last plugged the bleeding in quarterly earnings.

"I think the company will show a turnaround," said CIMB analyst Lee Do-hoon, pointing to the positive outlook for Samsung's foundry and display panel businesses in 2015.

Samsung shares were trading 0.5 per cent higher overseas at 8:40 am, compared with a 1.1 per cent rise for the broader market.

"There were concerns about the mobile division but it looks like the won's recent weakness against the dollar and the Galaxy Note 4 impact helped," HMC Investment analyst Greg Roh said, referring to solid sales of Samsung's latest flagship phone.

"I expect profits to continue improving through at least the second quarter of 2015," Roh said.

Several analysts tipped Samsung's semiconductor division to have earned more than the cash cow mobile business in October-December, buoyed by healthy demand for memory chips from personal computers and smartphones.

The company did not provide a breakdown of its earnings figures in Thursday's outlook, but a person with direct knowledge of the matter told Reuters that components sales picked up across the board, with healthy demand for memory chips and higher liquid crystal display panel prices.

The mobile division's contribution to Samsung's profit has slipped from about 68 percent at its peak in 2013 to about 44 percent in the third quarter, as its high-end offerings lost out to Apple's iPhones. Meanwhile buyers in booming emerging markets like China have opted for cheaper devices rather than Samsung's flagship Galaxy series.

The fourth-quarter profit of the company's mobile division improved slightly from the previous quarter due to a pickup in sales of premium products like the Galaxy Note 4 and lower marketing costs, the person with knowledge of the matter said, requesting anonymity because they were not authorized to speak publicly. But overall smartphone shipments fell, the person added.

Analysts say Samsung's new focus on mid-to-low tier smartphones will squeeze margins and cap profits, offsetting the benefits of the expected increase in sales.

"It'd be hard to expect a sharp pickup in earnings from the mobile division in the absence of a hit product," Korea Investment Trust Management Baik Jae-yer said.

The median forecast from a Reuters survey of 52 analysts tips a 23.8 trillion won profit for the South Korean tech giant for 2015, which would mean a second straight annual decline if Thursday's profit guidance is confirmed.

Samsung is talking up its internet of things-related businesses such as the smart home as the next big thing, while launching new quantum dot televisions and metal-body smartphones to boost earnings. But investors do not expect a profit surge from Samsung in the near term.

"What Samsung needs to show under the new regime of Vice Chairman Jay Y Lee is stabilisation, and that includes earnings," HDC Asset Management fund manager Park Jung-hoon said ahead of Samsung's guidance.

(Reuters)