Samsung to invest in chips, panels as smartphone outlook dims

SEOUL - Reuters

A Samung logo is displayed at a showroom in Seoul on July 5, 2013. AFP Photo

Samsung Electronics announced a $1 billion increase in investment on July 26, 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 and ZTE.

Samsung on July 26 reported a 47.5 percent rise in April-June operating profit of a record 9.53 trillion won ($8.54 billion), in line with its estimate.

But profits at its mobile division, which generates two thirds of its total earnings, slipped 3.5 percent 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.

Mobile division profit was still up 52 percent 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.

Samsung warned that global smartphone sales growth could weaken further in the third quarter, and said it expected stiffer competition due to new product launches. Apple is expected to release the iPhone 5S and a low-end iPhone later this year.

Hot chips

Samsung forecast stronger earnings in the second half thanks in part to its component business, which was staging a solid recovery on the back of soaring prices for semiconductors used in personal computers and mobile devices.

The world’s biggest maker of memory chips and televisions said profits from its chip business rose 71 percent to 1.76 trillion won in the second quarter.

Those concerns eased somewhat on July 23 when Apple reported stronger-than-expected iPhone sales, even if demand was stoked by aggressively discounted older models. The California-based company still reported a fall in quarterly profit of 22 percent as its margins slipped in the absence of new products.