Galaxy S20 Also Hit by Cold Snap... First Quarter Earnings Falter

Operating Profit in IM Division at 2.1 Trillion KRW... Lower Than Last Year's Earnings Shock
Consumer Sentiment Frozen Due to COVID-19, New Product Launch Impact Minimal
Smartphone Sales Expected to Drop to 60 Million Units in Q1 and Q2

[Asia Economy Reporter Han Jinju] Samsung Electronics received a bitter first-quarter report card due to sluggish sales of the Galaxy S20. The smartphone industry was hit hard by the slump in consumer sentiment caused by the spread of the novel coronavirus disease (COVID-19), and the Galaxy S20 was no exception to this early spring cold snap.

On the 7th, Samsung Electronics announced that its preliminary figures showed first-quarter sales of 55 trillion won and operating profit of 6.4 trillion won. The eye-catching operating profit of the IM division is expected to be in the range of 2.1 trillion to 2.2 trillion won. This is a poorer performance than the same period last year, which recorded an 'earnings shock' (operating profit of 2.27 trillion won). The securities industry lowered its operating profit forecast for the IM division from 2.6 trillion won to 2.2 trillion won, considering the sluggish smartphone business.

It is also painful for Samsung Electronics that the effect of the new product launch is minimal even though it has been a month since the Galaxy S20 was released. Global events such as the Mobile World Congress (MWC) were canceled unprecedentedly due to COVID-19, and smartphone demand sharply contracted. According to market research firm Strategy Analytics, smartphone shipments in February decreased by 38% compared to the previous year due to COVID-19.

Looking at domestic performance alone, Galaxy S20 sales, including unlocked units, remain at about 80% of the Galaxy S10. According to sales figures identified by the telecommunications industry, as of early this month, sales stand at 300,000 units, about half of the previous model. Lee Soonhak, a researcher at Hanwha Investment & Securities, said, "As the spread of COVID-19 rapidly accelerated in March, smartphone demand sharply declined, and the Galaxy S20's sluggishness was a major cause of the company's overall performance decline."

S20 and S20+ models are displayed at T Place Jonggak branch in Jongno-gu, Seoul. (Photo by Yonhap News)

Another factor that lowered Galaxy S20 sales was the demand being split with the 'Galaxy Z Flip,' which was released alongside the Galaxy S20. Samsung Electronics is targeting the foldable phone market as a new growth engine, but mass production is still difficult, and profitability is low compared to the research investment made. Samsung plans to expand its 5G lineup to include mid- to low-priced products in preparation for the growth in 5G smartphone demand, but the spread of COVID-19 is delaying 5G investments, which is also an obstacle.

The problem is that the situation is not expected to improve even after the second quarter. The market expects Samsung Electronics' smartphone sales in the second quarter to be 60 million units, which is more than 15 million units less than the same period last year. Yuanta Securities forecast that Samsung's total smartphone sales for this year will decrease by 12% from the previous year to 250 million units. Market research firm IDC also projects that smartphone shipments in the first half of 2020 will decrease by 10.6%. Apple also lowered its first-quarter (January to March) earnings forecast by $30 billion from the previous year's fourth quarter to $63 billion to $67 billion.

Due to the contraction in consumer sentiment, the outlook for the IM division's second-quarter performance is also bleak. Kim Kyungmin, chief research fellow at Hana Financial Investment, explained, "The business division with the highest uncertainty is the IM division, and the impact of COVID-19 is significant in industries with a B2C nature." Lee Soonhak, a researcher at Hanwha Investment & Securities, analyzed, "Samsung Electronics' smartphone sales in the second quarter will be limited to 60 million units, a 21% decrease compared to the same period last year."

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