Samsung reports declining smartphone sales, improved profit on the back of 5G models

Samsung reports declining smartphone sales, improved profit on the back of 5G models
Samsung's full financial report for the first three months of 2020 is out, and just as you would expect, everything is connected to the coronavirus pandemic. COVID-19 is mentioned no less than 22 times in the tech giant's press release announcing the final Q1 numbers, compared to buzzwords like 5G, OLED, or foldable, which come up only 12, four, and three times respectively.

Predictably enough, Samsung is "partially" blaming a few things that happened in the January - March timeframe on the deadly virus, although at the end of the day, the company impressively managed to boost its quarterly operating profit from Q1 2019 and total revenue compared to both the first and the final 90 days of last year. 

We're talking overall sales of KRW 55.33 trillion ($45.4 billion) and profits of KRW 6.45 trillion ($5.3 billion), two figures that would have been pretty remarkable even in a "normal" business context, rising from KRW 52.4 trillion and KRW 6.2 trillion during the opening quarter of 2019. 

Of course, Samsung was initially uniquely positioned to avoid the negative impact of the pandemic on Chinese smartphone production, but as factories have started to close in more places and global demand is falling off a cliff, the company expects to report a pretty major decline in its second quarter results. First things first though, let's take a closer look at those Q1 2020 numbers.

The S20 Ultra 5G was surprisingly popular and the Galaxy Z Flip also sold well

Focusing primarily on the chaebol's mobile division, it's interesting to point out the operating profit derived from smartphone sales jumped from both last year's first quarter and the traditionally busy holiday season. It's even more interesting to note that happened despite a fairly significant drop in consolidated revenue compared to Q1 2019, which can only mean one thing.

Samsung sold fewer handsets overall but a larger chunk of these sales came from high-end models rather than 2019's incredibly popular Galaxy A-series mid-rangers. The Galaxy S20 Ultra 5G is singled out as a great performer, accounting for a "higher-than-expected" share of the S20 family's shipments, which naturally drove ASPs (average selling prices) through the roof, vastly improving the IT & Mobile Communications department's profitability.

Samsung is also happy with the "solid sales" of the Galaxy Z Flip during its first few weeks of availability, which obviously contributed to the significant ASP boost as well. 

The "sales portion of 5G models" in general was increased between January and March 2020, while marketing expenses were used more "efficiently", leading to a divisional profit score of KRW 2.65 trillion ($2.1 billion), up from KRW 2.27 trillion and KRW 2.52 trillion in Q1 and Q4 2019 respectively, on total sales of KRW 26 trillion ($21.3 billion), down from KRW 27.2 trillion during the first quarter of last year.

Sharp declines and high market uncertainty ahead

Although Samsung knows full well its financial numbers will take a big hit in Q2 2020 and most likely beyond, it's pretty much impossible to predict exactly how bad things could get in the short to medium term. That's obviously because the pandemic is unlikely to go away anytime soon, and it remains unclear how much longer certain factories and stores will need to stay closed.

The "market" is also extremely uncertain when it comes to demand of "core" Samsung products ranging from smartphones to TVs, OLED screens, and even memory chips and semiconductors in general.

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Strictly speaking from the perspective of the tech giant's mobile division, sales are unsurprisingly expected to "drop sharply" due to shrinking demand in "most regions", and this time around, profits could also dwindle, especially as Samsung plans to continue expanding "5G adoption to mass-market smartphones" with lower price points and thinner margins than the likes of the Galaxy S20 Ultra.

Looking further ahead, the company hopes the "launch of new foldable and Note models" (well, hello there, Galaxy Fold 2 and Note 20) in the second half of the year will offset intensifying market competition predicted to take place as manufacturers "strive to recover from the weakness in the first half." It remains to be seen how the Galaxy Note 20 lineup might "strive" to distinguish itself from said competition. Maybe a lower than usual price is on the table?

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