Martin Garner
Samsung Q2 07: overtakes Motorola for 2nd place handset vendor
Samsung has released a mixed set of results this morning, but one highlight is the performance of the handset division, which has now overtaken Motorola in shipments to become the number two handset supplier in the world.Company sales were up 4% over the year to KRW 14.63trn, but operating profit fell 36% to KRW 0.91trn, leaving the company with an operating margin of 6%. Oversupply in the DRAM market is the main source of the fall.The telecommunications division, of which handsets is the major product area increased shipments 49% over the year to 37.4m, bringing sales growth of 5% to KRW 4.23trn, but a 13% decline in operating profit to KRW 0.35trn. The average sale price of its handsets fell from US$155 to US$148. Samsung raised its forecast for the year both for the handset market, to 1.13bn units and for its own shipments from 133m to more than 150m units.Comment: Samsung's handset business has been growing strongly over the last year, fuelled by its Ultra Edition and its push into lower tiers for emerging markets. This set of results continues that trend nicely.The reduction in average sale price is because of a change in the mix, with a higher share of shipments at lower values into emerging markets. As the Ultra II Edition comes into the market and as it launches lead experience phones (e.g. music) during the second half of the year, we expect the mix to change back slightly.The reduction in profit in the handset division is caused by increased marketing costs, as Samsung looks to strengthen its position in less developed markets and as it gears up for sustaining a somewhat larger market share. Here it needs to be careful not to let the marketing costs run too far ahead of its market position.In revenue terms Samsung had already overtaken Motorola as the 2nd place vendor. But the big news this quarter is that its shipments have overtaken Motorola's. It is interesting that, although Samsung's shipments this quarter are very strong, they are on the trend and do not show a huge uptick benefiting from Motorola's weakness. That may mean that Nokia is the major beneficiary of Motorola's woes.
