Premium Phones as 'Hyoja': Samsung Phones' 4Q Operating Profit Expected to Reach 2 Trillion Won (Comprehensive)

Thanks to Fold, earnings wrinkles smoothed out... 'Premium phone' plays a key role
Note10 and Fold perform well despite mid-range smartphone slump
IM Q4 operating profit expected in early 2 trillion won range... Better-than-expected solid results

[Image source=Yonhap News]

[Asia Economy Reporter Koo Chae-eun] Samsung Electronics' smartphone division posted a solid operating profit in the early 20 trillion KRW range in the fourth quarter of last year. Although the overall smartphone shipment volume slightly declined due to sluggish mid-to-low-end phone sales, premium phones such as the Galaxy Note10 and Galaxy Fold played a key role, resulting in performance that exceeded expectations.

◆Estimated in the 20 trillion KRW range, driven by premium phone performance = According to Samsung Electronics' earnings announced on the 8th, the IM division is estimated to have recorded an operating profit in the early 20 trillion KRW range in the fourth quarter. Securities firms have forecasted figures between 2.1 trillion KRW and 2.3 trillion KRW. This is lower than the previous quarter (2.92 trillion KRW) but more than 500 billion KRW higher than the same period last year (1.51 trillion KRW).

During this period, securities firms analyzed that Samsung Electronics' smartphone shipments would be around 70 million units. Samsung Electronics revealed in its earnings conference call that it shipped 78 million units during the same period last year. This is also a decrease compared to the 85 million units shipped in the third quarter of last year. The decline in Samsung Electronics' smartphone shipments is believed to be due to the diminishing effect of the Galaxy Note10 series launched in the third quarter of last year and mid-to-low-end smartphone sales falling short of expectations. Samsung Electronics reorganized its mid-to-low-end brands with Galaxy A and Galaxy M last year and has been focusing on emerging markets. This lineup is a key model driving annual shipment volumes.

Unlike the sluggish mid-to-low-end phones, premium phones performed well. The market views the success of premium products such as the Galaxy Note 10 and Galaxy Fold as the driving force behind the rise in operating profit. Although the foldable Galaxy Fold's shipment volume was not large, its high selling price is believed to have contributed significantly to profitability. As the sales proportion of premium smartphones increased, the average selling price (ASP) rose, boosting operating profit despite lower smartphone sales. A Samsung Electronics official explained, "The Galaxy Note10 and Galaxy Fold showed strong performance throughout the fourth quarter, positively impacting operating profit."

◆Will profitability improvement continue? = Securities firms expect the IM division's annual operating profit to record in the high 8 trillion KRW range, about a 10% decrease compared to the same period last year. Noh Geun-chang, a researcher at Hyundai Motor Securities, said, "The 2019 IM division operating profit is expected to decrease by about 12% despite growth in scale due to factors such as the withdrawal of the Huizhou factory in China," adding, "The Galaxy Fold also showed poor profitability due to development and marketing costs." Park Yoo-ak, a researcher at Kiwoom Securities, forecasted, "Although total smartphone sales are weaker than expected, profitability improvement is worth anticipating due to strong Galaxy Fold sales and a decline in component costs." Park Won-jae, a researcher at Mirae Asset Daewoo, predicted, "If the network business operating profit estimate of 230 billion KRW is included in the IM division, it could increase to the high 20 trillion KRW range."

Samsung Electronics is expected to release a clamshell-design foldable phone in February ahead of the Galaxy S11 launch in March, raising expectations for performance improvement centered on premium phones in the new year. If Samsung Electronics succeeds with this new product as well, it is analyzed that it will become a definite 'first mover' in the foldable phone market. Previously, Samsung Electronics was evaluated to have gained an advantage in the foldable phone battle against Huawei in the second half of last year. An industry insider said, "If the clamshell foldable phone performs well in the market following the Galaxy Fold, the performance improvement trend through premium phones will continue steadily."

This content was produced with the assistance of AI translation services.