Samsung to invest in chips, panels as outlook dims for smartphones

Written by Reuters | seoul | Updated: Jul 27 2013, 06:07am hrs
Samsung Electronics announced a $1-billion increase in investment on Friday, hoping a strong recovery in semiconductors will make up for weakening smartphone growth as it faces mounting pressure to produce eye-catching new gadgets.

The high-end smartphone market, which Samsung dominates along with Apple, is slowing and the South Korean giant is struggling to convince investors it can crack the rapidly growing low-end segment, where its rivals include China's Huawei Technologies and ZTE.

Samsung on Friday reported a 47.5% rise in April-June operating profit of a record 9.53 trillion won, in line with its estimate. But profits at its mobile division, which generates two-thirds of its total earnings, slipped 3.5% from the previous quarter even with the launch of its flagship Galaxy S4 in late April, sparking concerns its mobile growth momentum may have stalled as competition intensifies.

Executives offered little to give investors hope that a new market-shifting breakthrough in high-end smartphone technology is around the corner, fueling uncertainty over a segment which appears to have peaked in the first quarter after driving a series of record profits for Samsung in recent years.

Mobile division profit was still up 52% from a year ago but even that fell short of expectations, as slower sales of old models like the S3 and the marketing bill for the S4 took their toll.

It is clear the global smartphone market is stalling because of the slowing growth of high-end smartphones and rising competition from lower-priced smartphones, said Ahn Young-hoe, a fund manager at KTB Asset Management, which owns Samsung shares. There is no major momentum for Samsung. The key is whether Samsung, which sources smartphone parts in-house unlike Apple, will be able to cut parts costs and increase volume and market share to offset reduced smartphone margins.

Samsung warned that global smartphone sales growth could weaken further in the third quarter.