It’s simple. Smartphones and tablets are hot, televisions are not. As the world’s largest manufacturer of televisions, Samsung’s second quarter financial results revealed its flat-panel business is bleeding money, resulting in a 26 percent dip in profits. The unsettling news masked the surge in demand for its mobile line, leading to our simple conclusion. Samsung should focus on its smartphones and tablets.
Operating profit in the three month period ending June was 3.7 trillion won, down from 5.01 trillion won a year earlier. Bloomberg followed 25 leading analysts’ estimates and found an average operating profit forecast of 3.8 trillion won. Now that the blood is in the water Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., believes “if demand for tablets and 3-D TVs recovers, the panel business can turn around fast.”
So just how bad is Samsung’s display division? Flat panel sales dropped an estimated 11 percent, resulting in an operating loss of 73.5 billion won. That’s a steep dive from the 880 billion won profit a year earlier. Like fund manager Jeong Jae, we are of the belief that Samsung’s tablet line will be an integral part in turning around profits. But tablets alone will not win this war — the key will be smartphones.
The Samsung Galaxy S II has continued to shatter Android handset sales records. The last time we checked, worldwide sales had eclipsed the three million unit mark and show no signs of slowing. The new-found hurdle in smartphone profits, as we reported earlier this week, is Microsoft and it’s £9 royalty fee. If Samsung is forced into submission and pays out such an outrageous fee for every Android handset it sells, a turnaround in company profits will be even more difficult.
So what’s the solution? The short-term fix is to ramp production of the Galaxy S II and roll out the phone to more markets. There’s more than 200 million US wireless customers that have yet to see a carrier subsidized Galaxy S II. We’d imagine a release across the big four (Verizon Wireless, T-Mobile, AT&T, and Sprint) would turn the three million units sold in five, if not more. Additionally, it’s time to launch the Galaxy Tab 8.9. Samsung could command the tablet market if it offered two versions of its razor-thin slate.
Let us know how else Samsung can turn around company profits in the comments section below.