Profits stall at Samsung's mobile division

Worker bonuses and a strong won weighed on overall performance.

By Tim Hornyak, IDG News Service |  IT Management

Profits were flat in the fourth quarter in Samsung Electronics' smartphone and tablet business, despite an uptick in sales, in part because the company spent more on marketing over the holiday shopping period.

The company's IT and mobile communications (IM) division, which has smartphones and tablets as a key component, posted in the quarter the same operating profit of 5.47 trillion Korean won (US$5 billion) as in the fourth quarter of 2012, even as revenue from its mobile business grew 8.7 percent to over 32 trillion won.

The largest smartphone maker said earnings of its mobile business took a hit because of seasonally increased marketing expenditures and an unspecified one-off expense.

But the market for Samsung's smartphones may also be shrinking, as the company saw revenue from its mobile business drop 9 percent in the quarter from about 35 trillion won in the previous quarter.

The South Korean electronics giant on Friday reported overall operating profit of 8.31 trillion won for the October-December period, down by close to 6 percent from 8.84 trillion won in the last quarter of 2012.

Operating profit is a useful measure because it shows the performance of a company's core operations, excluding other factors like investments. The company's net profit for the quarter was 7.3 trillion won, up 4 percent from the same quarter in the previous year. Revenue was up by close to 6 percent to over 59 trillion won.

The manufacturer attributed its disappointing overall earnings performance to one-off expenses including a roughly 800 billion won employee bonus to mark the 20th anniversary of Samsung's new management strategy and the appreciating won, which eroded the value of Samsung's sales to the tune of 700 billion won.

"Excluding these two items, the fourth-quarter operational results, I believe, were respectably sound," Robert Yi, senior vice president of investor relations, said during a conference call on the earnings report.

The company surprised investors earlier this month when it warned that operating profit would fall for the first time in two years. Competition with Apple has intensified as carriers China Mobile and NTT DoCoMo in Japan started offering the iPhone, while macroeconomic factors such as increased concerns over possible U.S. tapering of quantitative easing also weighed on performance.

"Despite such challenging business conditions, we achieved record-high earnings in 2013 led by sustained growth in the IM business," Yi said. "Our 2013 revenue was up by 14 percent from the previous year, mainly led by growth in handsets and semiconductors."

Tablet shipments in 2013 doubled from the previous year as a result of new releases such as the Galaxy Tab 3 and the 2014 edition Galaxy Note 10.1. Samsung expects the tablet market to increase by more than 20 percent this year.

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