Samsung Smartphones Faltered in Q2, What About Q3?

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[Asia Economy Reporter Eunmo Koo] Samsung Electronics' smartphone business division is estimated to have posted weaker results in the second quarter compared to the first quarter. In the first quarter, the 'Galaxy S21' series led strong performance with the new product effect, but in the second quarter, it showed some sluggishness due to production disruptions caused by COVID-19 and a decrease in the new product effect. However, the third quarter is expected to rebound as the sales proportion of high-end products rises with the launch of new products such as the next-generation foldable smartphone 'Galaxy Z' series.

Second Quarter Smartphones Falter Due to Production Disruptions and Decreased New Product Effect

Samsung Electronics announced on the 7th that its preliminary business results for the second quarter of this year recorded sales of 63 trillion KRW and operating profit of 12.5 trillion KRW. Compared to the second quarter of last year (sales of 53 trillion KRW, operating profit of 8.15 trillion KRW), sales increased by 18.94% and operating profit by 53.4%, exceeding market expectations by more than 10%.

Sales reached an all-time high for the second quarter, and although sales (65.39 trillion KRW) decreased slightly compared to the first quarter, operating profit (9.38 trillion KRW) increased by more than 3 trillion KRW. The overall performance was driven by semiconductors, which had underperformed in the first quarter.

Samsung Electronics did not disclose segment-specific results, but securities firms analyzed that the mobile (IM) division, responsible for smartphones, posted operating profit around 3 trillion KRW, down from 4.4 trillion KRW in the first quarter.

First, the spread of COVID-19 in the Asia region is evaluated to have had a negative impact. Smartphone sales volume decreased by more than 20% compared to the previous quarter due to reduced demand in countries such as India, and production disruptions at the Vietnam factory caused smartphone shipments to drop from 76 million units in the first quarter to about 60 million units in the second quarter. Additionally, supply shortages of application processors (AP) for some models are also believed to have affected performance.

Furthermore, since Samsung Electronics took a bold step by launching the flagship model 'Galaxy S21' early in January this year, the new product effect inevitably decreased in the second quarter, which also seems to have impacted results. The IM division recorded operating profit of 4.39 trillion KRW in the first quarter, up 65.7% year-on-year, thanks to the early launch. Samsung Electronics targeted the market with price competitiveness by launching 5G flagship models priced below 1 million KRW, and actual sales exceeded 1 million units within two months of release domestically. This was a month faster than the previous model, the 'Galaxy S20.'

Despite reduced sales volume, cost reduction was achieved, resulting in favorable profitability. Manufacturing difficulties arose due to worsening COVID-19 situations in India and Vietnam, and although sales of low-priced models decreased, sales focused on high-end models, and marketing costs were reduced. Researcher Soonhak Lee of Hanwha Investment & Securities explained, "The IM division's smartphone sales volume decreased by more than 20% compared to the previous quarter due to AP supply shortages and the spread of COVID-19 in Asia," but added, "Profitability was favorable due to sales focused on high-end models and efficient marketing expenditure."

The expansion of sales of mid-range models such as the Galaxy A series is also viewed positively. Samsung Electronics focused on expanding the lineup of mid- to low-priced models such as the Galaxy A series in the second quarter. Models like the 'Galaxy A52' and 'Galaxy A72' were launched in various countries, and recently, budget models like the 'Galaxy M32' have also been released in countries such as India.

New Products Including ‘Galaxy Z Fold3’ to be Unveiled at August Galaxy Unpacked... High-End Phone Share Expansion Expected to Improve Third Quarter Performance

In the third quarter, sales and operating profit are expected to improve compared to the second quarter as the sales proportion of high-end phones rises again due to the new product effect from foldable smartphones awaiting release. Samsung Electronics plans to unveil a large number of new products, including the next-generation foldable phones ‘Galaxy Z Fold3’ and ‘Galaxy Z Flip3,’ the smartwatch ‘Galaxy Watch4,’ and wireless earbuds ‘Galaxy Buds2’ at the Galaxy Unpacked event on the 11th of next month.

These products are expected to be priced about 20% lower than their predecessors, raising expectations for the full-scale expansion of the foldable phone market. Since the Galaxy Note series will not be released this year, these foldable phone lineups will serve as Samsung Electronics' main models for the second half of the year.

Researcher Unho Kim of IBK Investment & Securities forecasted, "In the third quarter, overseas client volumes will become full-scale, and with new product launches such as foldable smartphones, the average selling price (ASP) is expected to improve, so both sales and operating profit are expected to improve compared to the second quarter."

According to financial information provider FnGuide, Samsung Electronics' operating profit for the third quarter of this year is estimated at 14.5303 trillion KRW, a 17.62% increase compared to the same period last year. Sales are also expected to grow by 5.19% to 70.4378 trillion KRW.

However, analysts caution that various variables must be considered. While volume is expected to grow to 65-70 million units, and profit and loss should normally improve compared to the second quarter, a slight decline is also possible. Researcher Minseong Hwang of Samsung Securities explained, "From a cost perspective, new product launches are expected to bring increased costs for new components and marketing, and the extent of price increases is uncertain," adding, "The expected sales volume of main new products is gradually being lowered due to unstable Qualcomm AP supply."

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