SAMSUNG ELECT LTD(F)(SSNLF)’s S6 Could Be The Device To Take On Rival Apple Inc. (AAPL), Says Analysts
SAMSUNG ELECT LTD(F)(OTCMKTS:SSNLF)’ Galaxy S6 and S6 Edge put the Korean company in a better position to take on rival Apple Inc. (NASDAQ:AAPL) in the premium smartphone category. Analysts think that Samsung will be able to register the first uptick in profits in nearly six quarters, courtesy of the S6 devices. Some analysts plan to raise their profit expectations for Samsung, based on the potential traction of the newly released smartphones.
Samsung’s operating income is expected to jump to over 8 trillion won, or about $7.4 billion, in the quarter ending in June (second quarter). That will be the first profit gain since at least 2013, according to various estimates. Samsung disclosed that its first quarter earnings surpassed expectations, but fell compared to the same quarter a year earlier.
Expensive device with latest features
There is a possibility that profits at Samsung’s mobile division could nearly double in the second quarter, based on the strong margins from the more expensive S6 Edge device. Samsung is trying to ward off competition from low-cost smartphone makers in China and elsewhere by appealing to customers who are willing to pay more for a differentiating product with more features. Additionally, inclusion of the latest features on the S6 smartphones also shows Samsung’s efforts at luring customers away from rival, Apple.
There is already a strong buzz around the S6 device, pushing Samsung shares up and adding nearly $16 billion to the company’s market valuation since the release of the smartphone.
First Quarter sales and profits decline
Samsung’s operating margins in quarter one jumped to 12.6%, which was the highest margin the company has attained in nearly three quarters. Operating income in the first quarter declined 31%, to 5.9 trillion won, but still came above 5.5 trillion won that analysts estimated. Sales in the quarter were down 12%, to 47 trillion.
The company is expected to continue posting better profit margins as the number of high-end smartphones in its mix rise to more than 30%.
Competition in the high-end category
Analysts have pointed out that Samsung’s first quarter may have been helped by strong demand for the cheaper Galaxy smartphones and lower marketing expenses. The company continues to face competition in the premium smartphone category. Apple took competition in the high-end smartphone a notch higher with the introduction of the larger display iPhone 6 series.
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