Samsung Takes Cellphone Lead
April 29, 2012, 9:33 a.m. ET
By EVAN RAMSTAD SEOUL—Soaring sales of smartphones lifted Samsung Electronics Co.'s profit to a record in the first quarter and apparently pushed the South Korean company past Nokia Corp. as the world's biggest cellphone seller.
Samsung may also have passed Apple Inc. as the world's top seller of smartphones, though analysts disagreed on that, giving widely varying estimates of Samsung's output. Other cellphone manufacturers disclose unit shipments of their products, but Samsung stopped doing so a year ago.
Analysts estimate Samsung's telecom division reached two milestones during the January-to-March period, passing Nokia Corp. as the world's top seller of cellphones and moving ahead of Apple again as the top seller of smartphones. Dow Jones's Gren Manuel reports. Photo: Getty Images
Even so, its overall financial announcement underscored the importance of Samsung's transition to smartphones, which, after a slow start, is now moving faster than the industry average. Samsung on Friday reported first-quarter profit of 5.05 trillion won ($4.45 billion), up 82% jump the year-earlier 2.78 trillion won. Sales were up 22% to 45.27 trillion won.
In Samsung's previous record quarter—the third quarter of 2010—three-fourths of its 4.46 trillion won profit came from its chip business. In this latest period, three-fourths came from cellphones.
The smartphone success has provided cover for Samsung's other businesses—particularly its chip division, long its main source of profits. The chip unit reported an operating profit margin of 9.5%, the lowest since the second quarter of 2009, and a 13% drop in sales. Executives pointed to a sharp reduction in prices of memory chips, the company's highest-volume product, and lost output due to factory retrofitting.
With smartphones yielding more revenue and bigger profit margins than regular cellphones, Samsung's telecom unit nearly doubled its revenue and nearly tripled its operating profit compared to a year ago. The operating profit margin of Samsung's telecom unit reached 18.4%, the highest level since 2004, and the unit accounted for half of the broader company's sales.
On Thursday, Samsung will unveil a new version of its flagship Android-based phone, expected to be called Galaxy S III. "We expect it to be our most successful smartphone ever," Kim Hyun-joon, a vice president in the company's mobile-communications business, said Friday, forecasting it will "substantially contribute" to second-quarter results.
Samsung's refusal to provide data on cellphone sales, however, makes it unclear precisely how far it has advanced in its transition to smartphones. The issue is likely to concern large investors and financial analysts, whose forecasts for the company's stock performance in recent months have increasingly focused on smartphones.
With Samsung the last cellphone maker to report results, market-research firms on Friday hustled out preliminary scoring for the first quarter—and diverged widely.
All appeared to agree that Samsung eclipsed Nokia in cellphone sales to become No. 1 for the first time. Nokia, which has struggled with the smartphone transition, last week reported shipping 82.7 million phones in the quarter, 24% less than a year earlier. However, analysts' estimates of Samsung's winning margin ranged from just 700,000 phones (ABI Research) to about 10 million phones (Strategy Analytics).
And in smartphones, Strategy Analytics estimated Samsung beat Apple's reported sales of 35.1 million by about seven million. But others put Samsung still second to Apple, with IHS iSuppli estimating Samsung shipped only 32 million smartphones.
Samsung executives made no comments about the company's standing against its rivals. They said in a conference call with analysts that sales were down by a single-digit percentage from the fourth quarter of last year.
Adding to the confusion is that the last time Samsung disclosed sales figures, in the fourth quarter of 2010, it mixed tallies of smartphones and tablet PCs. The next quarter, with its tablet sales looking weak and litigation beginning with Apple over smartphone designs and patents, Samsung stopped providing the figures altogether.
Samsung, which has been a top-five maker of cellphones for more than a decade and No. 2 since 2006, entered the smartphone business just two years ago, long after Blackberry maker Research in Motion Inc. and three years after the rollout of Apple's iPhone. It has relied heavily on models built around Google Inc.'s Android software to gain ground.
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