Samsung's 1Q profit falls 4 percent as declining smartphone prices pose challenge


SEOUL, South Korea — Samsung Electronics Co. said its January-March operating income declined 4 percent over a year earlier amid worries about how declining prices of smartphones would impact the world’s largest mobile phone maker.

The Asian tech heavyweight said in its Tuesday earnings preview that its operating income for the first three months of this year reached 8.4 trillion won ($8 billion), compared with 8.8 trillion won a year earlier. Sales remained flat at 53 trillion won.

The operating profit was in line with the median estimate by analysts surveyed by FactSet. Compared with the previous quarter, sales sank 11 percent while operating income inched up 1 percent.

The profit decline shows the challenge for Samsung to continue its earnings growth in the face of falling prices of smartphones, its biggest cash cow that brings over two-third of its income.

The average price of a Samsung smartphone this year will likely be $271, down 9 percent from the previous year, according to Chung Chang-won, an analyst at Nomura Financial Investment.

That is because smartphone sales growth is slowing in North America, Europe, South Korea and Japan while consumers in emerging markets tend to buy a cheaper handset.

Declining prices of smartphones also put pressure on the components that go into mobile devices, such as memory chips and display panels, two other key products made by Samsung.

Samsung is keen on cutting costs as boosting its profit gets tougher. Earlier this year, its mobile business executive said the company will reduce the portion of ads and promotional fees to revenues. Samsung spent over $11 billion on advertising and promotions for handsets, televisions and other products last year.

While Samsung did not elaborate on its performance, most analysts expected Samsung’s bottom line to improve from the current quarter as the latest version of its flagship smartphone, the Galaxy S5, goes on sale worldwide from Friday.

Samsung, the world’s largest maker of smartphones, televisions and memory chips, will announce its full financial results including net income later this month.