Samsung Electronics Co (SMSN) GDR each Representing 0.5 KRW5000 (REG'S'/144A)
HL comment (25 October 2013)
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- Samsung reported a record quarterly profit of 8.24 trillion won, ($7.6 billion) up from 6.56 trillion won during the same period a year earlier.
- The group's mobile division, Samsung's biggest profit generator, reported a record 6.7 trillion won profit in the period.
- Profits at its chip business doubled to 2.06 trillion won, the highest level in three years, reflecting stronger chip prices.
- Overall, sales rose to 59.08 trillion won, the company achieved sales of 52.18 trillion won a year earlier.
- Samsung unveiled in September its Galaxy Gear that will be competing with Sony's SmartWatch 2, which was announced in June while rival Apple is preparing to launch its iWatch early next year. The Galaxy Gear does not operate independently. At present, it can only connect to two of the company's products which may limit its appeal.
- Samsung are hindered in investment terms by its being a "chaebol". A chaebol is peculiar to South Korea, and is usually typified by a conglomerate which owns numerous international operations, but which - importantly - is usually controlled by a Chairman who has power over all of the operations. These companies are also largely family owned, such that they tend to trade at a discount to reflect an approach which is not Western. Furthermore, detractors highlight the government's tendency to back the company regardless of the economic reality.
- Samsung operates in a fiercely competitive space. Competition in the handset market alone will almost certainly intensify which may erode margins, in an industry where companies live and die by their ability to stay ahead of the innovation curve.
- A significant concern for Samsung Electronics going forward is that around 70% of total operating profit comes from its mobile division.
- Concern has been expressed that consumer appetite for top-of-the-range smartphones is beginning to wane.
- In smartphones, Samsung is also facing a similar challenge to Apple in that consumers are increasingly buying its older less expensive models rather than the latest version. It also faces margin pressure in the current quarter as it invests in marketing its high-end Galaxy S4 and Note 3 smartphones during the year-end festive period.
- Within its consumer electronics division, which includes TV manufacturing, Samsung saw a decline in profit due to a drop in demand in China and Europe.
- Samsung Electronics is the flagship subsidiary of Samsung Group, a multinational electronics company headquartered in Suwon, South Korea. It is one of the world's largest vendors in the tablet, mobile phone and smartphone markets that includes its Samsung Galaxy line of devices.
- The mobile business continued to be the biggest profit generator for Samsung in the quarter. It reported a record 6.7 trillion won profit, a result of a greater variety of cheaper Galaxy smartphones boosted shipment volumes and helped counter weakening growth in the lucrative high-end segment. Its growth in the sector has seen it become the world's biggest smartphone maker.
- Samsung said it would spend 24 trillion won in capital expenditure this year, surpassing the 22.8 trillion won spent in 2012. The company plans to invest 13 trillion won to expand its chip facilities and 6.5 trillion won in displays.
- The company has invested heavily in distribution channels including opening brand shops in 1,400 Best Buy stores in the United States.
- Wearable technology such as the Galaxy Gear is seen as a new growth driver for global computing companies amid increasing concern that the smartphone market has reached saturation point in the US and Europe.
- The company benefits from product and geographical diversification. It also has leading market positions in the TV and memory products markets, within which prices of memory chips have remained strong in light of further innovation and are likely to remain so.
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