Samsung storming profits puts bite on Apple

Samsung has just posted yet another record quarter, but the South Korean giant thinks a storm's coming...

by Michael Northcott
Last Updated: 19 Aug 2013

It’s safe to say that Samsung has been absolutely smashing it recently, and its latest year-on-year results will no doubt be giving Tim Cook some sleepless nights. The firm posted net profit of about £4.2bn during the first quarter of this year, which is a massive 54% increase on the first quarter of 2012, and sales also climbed by around 18%. 

But despite such dazzling figures, the Samsung sheen might be about to come off: the results also showed a 6% drop in sales versus the previous three months, the first drop in quarter-on-quarter revenues for two years. Predictably, smartphones held up, and profits in that division of the company continued to grow. But in all other parts of the business – including D-Ram memory chips and general consumer electronics – earnings fell. 

So what’s happened? It’s partly down to falling sales of microchips because of a weak PC market (although growth in high-powered smartphones will take up some of that slack), but the firm also had to put aside provision for a possible damages payout to main rival Apple over a patent dispute. The firm wouldn’t say how much, but in August last year a US court ordered Samsung to pay Apple $1bn for an IP breach. The figure has now been reduced to $450m, but it’s still a great big chunk of cash.

As for what the future holds, it sounds like management are preparing for a slowdown. Investor relations boss Robert Yi said: ‘We may experience stiffer competition in the mobile business due to the expansion of the mid-to-low-end smartphone market.’ 

Still, trouble in the pipeline or not, the bumper results must be particularly painful for Apple, whose market capitalisation has dropped by $300bn in the space of six months. It’s smartphone sales are starting to seriously disappoint investors, and there are worries – not least in the Mac Geek community – that the company has run out of ideas since Jobs went off to play in a big Apple Store in the sky. 

Samsung may be on the verge of a slowdown, but for the time being it seems shareholders are not too bothered. The share price was down just 0.5% at the time of writing, meaning it’s still almost as high as it has ever been. Nothing to get jittery about just yet.

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