Samsung sold fewer phones in Q4, but made more money out of them

Samsung announced its earnings for Q4 2014, and it’s a mixed bag: while the IT & mobile unit tumbled compared to a year before, the solid component business helped Samsung increase its overall profit compared to the previous quarter.

Overall performance

At a company level, Samsung posted a revenue of KRW 52.73 trillion (around $48 billion) in the quarter ending December 31, 2014, which is 11 percent increase over Q3, but a decrease compared to Q4 2013, when Samsung made KRW 59.28 trillion in revenue.

It’s the same story on the profit side – overall, Samsung made KRW 5.29 trillion ($4.82 billion) in operating profit in Q4 2014, compared to KRW 4.06 trillion in Q3 2014. Profit this quarter was much smaller than the KRW 8.31 trillion from Q4 2013.

The results were slightly better than Samsung’s guidance from January 8.

Mobile unit

Breaking down the earnings per division reveals that the biggest contributor to Samsung’s YoY slowdown was the mobile unit. Samsung actually sold fewer smartphones compared to the previous quarter, with an estimate total between 71 and 76 million units. While Samsung sold fewer smartphones, the average selling price was higher, thanks to the effect of the high-end Galaxy Note 4.

Thanks to the higher ASP and “efficient management of marketing expenditures,” the mobile division posted an increase in both revenue and profit: KRW 26.29 trillion ($23 billion) and KRW 1.96 trillion ($1.78 billion), compared to KRW 24.58 trillion and KRW 1.74 trillion in Q3 2014. Compared to the same quarter in 2013, however, profit was down a whopping 64 percent.

Component unit

The component business’ healthy grow masked the weakness from the mobile biz. Thanks to “solid demand for memory products and an increase in 20-nanometer mobile application processor (AP) supply,” Samsung posted KRW 10.66 trillion ($9.72 billion) in revenue and KRW 2.7 trillion ($2.46 billion) in profit for the component business. Besides memory and processors, this unit also makes LCD and OLED for smartphones, tablets, and TVs.

To get a better idea of how the performance of the mobile and component business has inverted over the past year, consider that mobile earned 37 percent of Samsung’s Q4 profit, compared to 76 percent in Q1 2014. This is the lowest share of the profits for the mobile unit since 2010.

Outlook

To summarize: in Q4, Samsung earned slightly more money compared to Q3, but much less money than in Q4 of the previous year. The company sold fewer phones compared to Q3, but made slight more money out of them. The quarter could have been much worse, if it weren’t for strong memory and processor sales.

For 2015, Samsung’s leadership looks forward to “stability, recovery or growth” across its businesses, with the processor unit singled out as a moneymaker.

As for smartphones:

“In 2015, the IM Division expects continued growth as emerging markets, such as China and India, are expected to grow for smartphones, and 4G LTE services are expected to expand across the world. Through new materials, innovative design and differentiated features, competitive products will be introduced to drive smartphone sales, while efficiency will be enhanced across R&D and marketing to increase profitability.”

And:

“In the first quarter of 2015, while seasonality is expected to decrease demand for smartphones and tablets relative to the previous quarter, the Mobile Business will focus on increasing sales and improving business performance through new product line-ups, such as the Galaxy A series.”

In stark contrast to Samsung’s mixed results, archrival Apple posted blowout earnings for Q4 2014; $18 billion in profit made Apple’s Q4 the most profitable quarter for any company ever. According to some research firms, Apple actually managed to sell more smartphones that Samsung in Q4, for the first time in years.