IM division's operating profit of KRW 2 trillion … It's lower than last year's earnings shock
In the aftermath of Corona 19, consumer sentiment freezes and new product launch effects are minimal
Forecast of smartphone sales to fall to 60 million units in the first and second quarters
(Reporter Han Jin-joo, Asian Economics) Samsung Electronics accepted a bitter 1st grade report due to sluggish sales of the Galaxy S20. The smartphone industry was hit hard by the consumer sentiment slump following the spread of new coronavirus infection (Corona19), and the Galaxy S20 was also unable to escape the cold.
On the 7th, Samsung Electronics announced that it had tentatively counted sales of 55 trillion won and operating profit of 6 trillion 400 billion won in the first quarter. The eye-catching IM division's operating profit is expected to range from 2.2 trillion won to 2.2 trillion won. This is lower than the same period of the previous year (2.27 trillion won), which recorded 'earning shock'. In light of the sluggishness of the smartphone business, securities stocks lowered their earnings forecasts for the IM division from 2.6 trillion won to 2,200 trillion won.
It has been a month since the Galaxy S20 was released, but it is also painful for Samsung Electronics that the effect of launching a new product is negligible. With Corona 19, global events such as Mobile World Congress (MWC) were canceled unprecedented and demand for smartphones shrank sharply. According to market research firm Strategic Analytics, smartphone shipments fell 38% YoY in February due to Corona19.
In terms of domestic earnings, the sales volume of the Galaxy S20 remains at 80% of the Galaxy S10, including self-sufficient products. As of early this month, the sales volume identified by the mobile communication industry is 300,000, which is about half of the previous product. Lee Soon-hak, a researcher at Hanwha Investment & Securities, said, “In March, as the spread of Corona 19 rapidly increased, demand for smartphones plummeted, and the sluggishness of the Galaxy S20 was the main reason for the decline in corporate performance.”
S20 and S20 + models are on display at the T-Place Jonggak in Jongno-gu, Seoul. (Photo source: Yonhap News)
The diversification of demand with the 'Galaxy Z Flip' released along with the Galaxy S20 is also one of the factors that has reduced the sales of the Galaxy S20. Samsung Electronics is targeting the foldable phone market with new food, but it is still difficult to mass-produce and its profitability is low compared to the research funding. Samsung Electronics is planning to increase its 5G lineup to mid- to low-priced products in preparation for growth in demand for 5G smartphones, but it is also an obstacle that the 5G investment is delayed due to the spread of Corona19.
The problem is that it is still not very successful even after the second quarter. In the market, Samsung Electronics estimates the smartphone sales forecast for the second quarter to 60 million units. This is a decrease of more than 15 million units compared to the same period last year. Yuanta Securities predicted that Samsung Electronics' total smartphone sales this year will be 250 million units, down 12% from the previous year. There is also a forecast by IDC, a market research institute, that smartphone shipments will drop 10.6% in the first half of 2020. Apple also lowered its forecast for the first quarter (January to March) to $ 63 billion to $ 67 billion, down 30 billion dollars from the fourth quarter of last year.
The outlook for 2Q earnings in the IM division is also dark due to a shrinking consumer sentiment. Kim Gyeong-min, senior researcher at Hana Financial Investment, explained, “The business unit with the highest uncertainty is the IM sector, and the effect of Corona 19 is largely occurring in industries that have B2C characteristics.” Lee Soon-hak, a researcher at Hanwha Investment & Securities, said, “Samsung Electronics' smartphone sales in the second quarter will be reduced by 21% year-on-year to 60 million units.”
Reporter Jin-Ju Han firstname.lastname@example.org