Disappointing first-quarter results for Samsung and HTC.

Samsung and HTC record disappointing first-quarter results as smartphones slow

Falling prices and competition from Chinese companies pile on pressure as handset makers hope new flagship phones will bring better results

A South Korean customer looks at Samsung's Galaxy S5 smartphone at a mobile phone shop in Seoul on 27 March 2014. Operators offered it for sale early to get around a forthcoming government ban. Photograph: JUNG YEON-JE/AFP/Getty Images

Phone makers Samsung and HTC have reported discouraging first-quarter results, with Samsung recording its second year-on-year decline in operating profit and Taiwan's HTC suffering its third loss in three quarters.
For both the figures come just as they are launching new high-end smartphones - a segment where growth is reckoned to be slowing.
Analysts now thing that there will be growing pressure on profit margins as competition increases in the smartphone market and average prices fall, driven especially by competition on the Chinese mainland.
Samsung Electronics, the world's largest smartphone and mobile phone maker, on Tuesday posted estimated first-quarter operating profits of 8.4 trillion won (US$7.96 billion), down 4.3% from a year earlier. That marks the second quarter of year-on-year decline, after a 6% drop in the fourth quarter. Sales were flat at 53trn won, up 0.24%.
The mobile segment is the largest contributor to Samsung's revenues and profits. Estimated profits for Samsung's mobile division grew to 6.2trn won, up from 5.5trn won in the three months to December, said Young Park, an analyst at Hyundai Securities.

HTC's loss

HTC, meanwhile, recorded a first-quarter operating loss, its third in a row, of TW$2.05bn (US$62.3m) on revenues which fell by 22% year-on-year of TW$33.12bn (US$1.1bn).
The Taiwanese smartphone maker's revenues were boosted in March by sales of its new HTC One M8 to carriers, which will begin selling it later this week in the US and other countries. HTC expects revenues to pick up in the next quarter through sales of the M8 and its mid-range Desire 816, which is aimed at the Chinese market.
"As the company expects robust demand for HTC One (M8) and Desire 816 from the second quarter, the sales would rise...and the company expects to turn profitable in the second quarter," HTC said in a statement.
Samsung's profit estimate - which it will consolidate formally later in the month - was in line with market expectations. Analysts had forecast profits of between 8.14trn and 8.63trn won.
"The operating profits fell for two straight quarters year-on-year as profit margins in smartphones were falling and the growth rate in smartphone sales was decreasing due to growing competition," Park told the news agency AFP.

Falling average prices

Greg Roh of HMC Investment Securities estimated the average price of Samsung smartphones at $209 in the fourth quarter of last year, down from $235 in the second quarter.
Samsung accelerated the launch of its flagship Galaxy S5 smartphone compared to last year, announcing it in February rather than March. The phone, which Samsung hopes will cement its lead in the global smartphone market, came out in its home market on 27 March, two weeks earlier than the global launch slated for 11 April, to help operators there - which face a government ban on selling new handsets during the S5's launch period.
Park said Samsung's television division was expected to have fared poorly this quarter due to sliding global prices, but that profits for the company's semiconductor division would be about the same as in the fourth quarter.
For the whole of 2014, Samsung's operating profit is likely to be around 37trn won, about the same as last year's, he added - although Roh said the figure would probably fall to 35trn won because of the slowing demand for smartphones.
Samsung made more than 30% of all smartphones sold in the world last year, nearly twice the share of its arch-rival Apple. HTC had around 2% of the global market, but suffered in 2013 as Samsung's heftier marketing spend and its own misfires in advertising failed to ignite interest in its phones. Data from the US suggests it has lost users while Samsung and Apple have gained.

Wearable target

But Samsung is also faces the a daunting challenge of keeping momentum in the increasingly saturated market.
Major handset makers have recently stepped up efforts to develop wearable devices, seen as a new source for growth - though few have managed to garner large consumer excitement or sales.
Samsung's first internet-enabled smartwatch, introduced last September, was greeted coldly by consumers who viewed it unfashionable. Its second edition, the Gear 2, was launched in February, using its own Tizen software rather than Google's Android software that powers its smartphones.
Apple is believed to be planning its own smartwatch launch soon, while Google is moving towards a wider consumer launch of its internet-enabled eyewear Glass. Apple is not widely expected to update its smartphone line-up until September.
Samsung is also under pressure to set aside more cash for legal bills as years-long patent battles against Apple continue.
The two have locked horns in patent suits in several nations involving design and technologies on their smartphones and tablet computers.
A fresh patent trial opened in the United States last week, with Apple vowing to prove that Samsung flagrantly copied iPhone features and should pay more than $2bn in damages. Samsung is appealing an earlier damages award to Apple of just under $1bn from a similar patent trial which concluded last year.
Samsung is believed to have set aside an additional 300bn won in the first quarter for patent payments, according to Byun Han-Joon, analyst at the Seoul-based KB Investment & Securities.
Operating profits are expected to climb to 9.3trn won in the second quarter as sales of Galaxy S5 pick up globally thanks to a lack of competing models, Byun said. That would still be lower than the 9.5trn won posted in the second quarter of 2013.