Samsung Electronics Co. on Tuesday posted a market-beating quarterly profit on growing demand for memory chips and displays, signaling the tech giant may be pulling out of an earnings slump.
In a regulatory filing, Samsung said its operating profit rose 11.5 percent on-quarter to 5.9 trillion won ($5.44 billion) in the January-March period, though it represented a 30.5 percent drop from a year earlier.
The first-quarter operating profit was far above the median market forecast of 5.47 trillion won among South Korea's 21 brokerage houses, which was compiled by Yonhap Infomax, the financial arm of Yonhap News Agency.
Sales were estimated at 47 trillion won for the January-March period, down 12.44 percent from a year earlier and down 10.87 percent from the previous three-month period.
Samsung didn't provide its net profit estimate or a breakdown of sector performances for last quarter. The final first-quarter result will be released later this month.
Shares of Samsung Electronics closed at 1,462,000 won Tuesday on the main bourse, down 0.54 percent from the previous session, when the KOSPI market edged up 0.03 percent. The guidance was released before the local stock market opened.
Despite the on-year drop in first-quarter operating profit, analysts said the result is significant in that it implies Samsung Electronics may have entered a recovery phase.
Analysts said Samsung's mobile business is expected to have slightly rebounded as the average sales price of handsets improved while the firm also reduced marketing costs.
Samsung's mainstay IT and mobile business is forecast to have raked in an operating profit of 2 trillion won or higher, up slightly from the 1.96 trillion won in the fourth quarter of 2014. The estimate, however, still hovers far below the 6 trillion won posted in the first quarter of last year.
The device solution business, which covers semiconductors, is estimated to have recorded an operating profit of more than 3 trillion won in the January-March period, analysts added.
While sales remained low due to falling seasonal demand, some analysts said Samsung's first-quarter guidance can still be considered an "earnings surprise."
"Due to robust sales of the Galaxy A, E and J series, smartphone shipments are expected to reach 820 million units in the first quarter," said Lee Seung-woo, an analyst at IBK Investment & Securities Co. "After hitting bottom in the third quarter of 2014, the firm has been on the growth trend."
"Overall, the company is expected to have performed well in the NAND flash memory chip sector as well, although returns from the dynamic random access memory may have suffered," said Lee Min-hee, an analyst at I'M Investment & Securities Co. "The System LSI will continue to grow, also helped by its supply to Apple."
Lee Ka-keun from KB Investment & Securities Co., meanwhile, said the consumer electronics sector probably suffered a profitability decline due to falling sales of TVs due to the weak currencies of emerging markets.
Analysts said Samsung's recovery will continue to pick up in the second quarter, helped by the new Galaxies that will hit the market later this week.
The new Galaxy S6 and Galaxy S6 Edge, unveiled ahead of the Mobile World Congress in Spain last month, boast a handful of technology breakthroughs, including the industry's first wireless-charging batteries and a new mobile payment system. They will also be Samsung's first smartphones to come with a built-in battery like those produced by U.S. Apple Inc.
The quirky Galaxy S6 Edge also has been grabbing the market's attention with the industry's first screen that is curved at both ends, providing users with a wider view. This is an upgrade from the Galaxy Note Edge, which has a curved screen on only one side.
Helped by the newcomers, some analysts said, Samsung may even post an operating profit of 8 trillion won in the April-June period, an increase from 7.1 trillion won a year earlier.
For the second quarter of 2015, South Korean brokerage houses predict Samsung to register an average operating profit of 6.7 trillion won, data compiled by market tracker FnGuide showed.
However, pessimists cautioned that investors should take a wait-and-see approach toward Samsung, adding that some of the outlooks overestimate the sales of the Galaxy S6 and its sister. Analysts have been casting a sales estimate of 50 to 60 million for the Galaxy S6.
"The high-end smartphones account for only 30 percent of the combined market. Considering that the iPhone 6 is still selling high, some of the sales outlooks on the Galaxy S6 are exaggerated," said Lee Min-hee from I'M Investment & Securities.
Nevertheless, investors mostly believe the Galaxy S6 is a gamechanger for Samsung, which has been suffering from falling market shares around the globe.
In terms of revenue, Samsung took up 17.2 percent of the global smartphone market in the October-December period of 2014, while its rival Apple Inc. took up 48.9 percent, market tracker Strategy Analytics earlier said. In 2013, the South Korean player held 34.1 percent, just slightly below Apple's 34.2 percent.
Samsung Electronics also has been making various moves to cut costs and bring more efficiency to its operation. In line with such efforts, the company has frozen wages of all employees, including executive-level staffs, marking the first such move since 2009. Such moves will likely help boost its profitability down the road, analysts added. (Yonhap)