Samsung Electronics Co., Ltd. on April 26 announced revenues of 52.87 trillion won on a consolidated basis for the first quarter ended March 31, 2013, a 6 percent decrease from the previous quarter. Consolidated operating profit for the quarter reached 8.78 trillion won, representing a 1-percent decline (QoQ), while consolidated net profit for the same quarter was 7.15 trillion won. 

In its earnings guidance disclosed on April 5, Samsung estimated first quarter consolidated revenues would reach approximately 52 trillion won with consolidated operating profit of approximately 8.7 trillion won. 

Highlighting the quarterly performance, the IT & Mobile Communications (IM) Division which comprises the Mobile Communications, Networks, and Digital Imaging businesses, achieved profitable results backed by strong smartphone sales coupled with reduced marketing expenses. 

The IM Division rang up the first quarter with revenues of 32.82 trillion won, a 7-percent increase from the previous quarter. Sound sales of Galaxy S3 and Galaxy Note2 devices aided profit margins for Mobile Communications, but in the second quarter global demand for smartphones is forecast to dampen, compounded by heightened competition. The January-to-March quarter again proved trying on the PC business, while the Networks Business came around with a stable supply of Long Term Evolution (LTE), fourth-generation (4G) telecommunications equipment. 

Demand for consumer electronics products in emerging markets stemmed further sales losses but weak seasonality and a sluggish economy took their toll on Samsung’s sales of TVs and home appliances. 

“Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase R&D spending for strengthening our competitiveness ahead of planned new product launches,” said Robert Yi, Senior Vice President and Head of Investor Relations. 

Yi cautioned, however, “We may experience stiffer competition in the mobile business due to expansion of the mid- to low-end smartphone market while TV growth will continue to wane in developed markets.” 

On the components side, global supply of PC DRAM remained weak, brought on by adjustments in the product mix by chipmakers opting to manufacture mobile and server DRAM over chips used in PCs. Samsung is looking to improve its profit margins with a differentiated product portfolio. 

The Display Panel segment faced a challenging quarter due to seasonally soft demand from set makers. However the introduction of new devices and increased shipments of smartphone display panels, prevented steeper losses. 

As for this year’s capital expenditure, Samsung Electronics executed a combined total of 3.9 trillion won for the quarter. The Semiconductor and Display Panel segments were each accountable for 1.5 trillion won in capex spending. Samsung is poised to increase investment beginning from the second half of the fiscal year to preempt rising demand for differentiated products and to harness its competitiveness in the high-tech industry. 

The company expects the proportion of capex, compared with that of last year, to be larger in the second half of 2013. Overall spending this year is likely to be similar to the 22.8 trillion won invested in 2012. 

High-End, High-Density Chips Will Make the Difference 

Samsung’s Semiconductor businesses  including Memory and System LSI posted consolidated 8.58 trillion won in revenue, a 11-percent drop from a quarter earlier. The Memory chip unit logged 5.12 trillion won in earnings but, compared with the previous period, quarter-on-quarter revenue retreated 4 percent. 

PC DRAM supply continued to decline in the quarter, stifled by weak demand in PCs, while demand for mobile DRAM, used in smartphones and tablets, remained stable. Samsung’s DRAM business remained solid with a differentiated product mix including server DRAM. 

Increased specialty DRAM for eMCP, LPDDR3 and high-density servers boosted profitability. The NAND flash memory segment remained competitive through process migration, which reduced cost and expanded offerings of high value-added solution products. Profitability for the System LSI Business was hampered by seasonally slow demand in set products that use logic chips. 

Prospects for the PC DRAM market are uncertain as tighter demand and narrower market size weigh on suppliers. Mobile DRAM will continue to see growth, as the market’s appetite for high-performance, high-density chips increases. 

With the rollout of new and more powerful mobile devices expected throughout the year, the market for NAND flash memory and increased adoption of Solid State Drives (SSD) at data centers will escalate demand. The ramp-up of 28 nanometer process technology is expected to shore up System LSI’s earnings moving forward.