Samsung Q1 2014 Results: Company Reports Second Straight Drop In Quarterly Profits, Blames Lower Smartphone Demand, Falling Flat-Screen Panel Sales

Samsung Electronics Co Ltd (KRX:005935) reported its second straight quarterly drop in profits Tuesday, mainly because of its loss-making flat-screen panel business and weaker demand for high-end smartphones in the first quarter of the year, but managed to narrowly surpass its revenue guidance for the quarter.

Samsung, which acknowledged that “market demand for electronics devices such as smartphones and tablets in the January-March quarter is traditionally slow,” expects the upcoming soccer World Cup in Brazil to help increase sales of its devices in the second quarter and beyond. For the three-month period ending in March, Samsung reported a quarterly operating profit of 8.5 trillion won ($8.2 billion), a drop of 3.3 percent from the same period a year earlier. The company had previously guided for operational profit of 8.4 trillion won.

“We expect our overall earnings to improve starting from the second quarter, driven by improvements in the Display Panel segment and the Consumer Electronics division in conjunction with steady growth momentum in mobile and memory businesses,” Robert Yi, senior vice president and head of investor relations at Samsung, said in a statement.

In the mobile division, Samsung posted an operating profit of 6.43 trillion ($6.2 billion), down 1.2 percent from 6.51 trillion won posted a year earlier. For the same quarter, Apple Inc. (NASDAQ:AAPL) reported an operating income of $13.6 billion, an increase of 8.24 percent over the same period last year.

Samsung, which is involved in a patent war with Apple with access to the entire U.S. market at stake, is also pinning its hopes on the latest Galaxy S5 smartphone to help boost earnings.

Samsung’s mobile business is poised for an uncertain 2014, analysts told Reuters, as the company’s broad range of low-end phones has been challenged by fast-improving, cheap devices from China, while its premium large-screen handsets are at risk from new models from Apple, which is expected to release its large-screen iPhone 6 later this year.

In the flat-screen panels business, Samsung suffered an 80 billion won loss in the first quarter of this year, compared with a 770 billion won profit in the same quarter last year.

“During the first quarter of 2014, the overall LCD market experienced an on-quarter decline in demand for TV and tablet panels as product makers reduced orders,” Samsung said. “For Samsung, earnings were impacted by cost increases related to the ramp-up of production in China coupled with the decline in ASP (average selling price).”

In the second quarter, Samsung said it expects to increase shipments of larger and higher-resolution panels for tablets and smartphones. The company also said that it would focus on the production of flexible panels for the new wearable devices category.