The Korean electronics maker expects second-quarter profits to soar fivefold thanks largely to its aggressively marketed high-end LCD TVs
Don't tell Samsung Electronics executives that there's no money to be made making TVs. Samsung, which is fast eclipsing Sony (SNE) as the top TV brand, announced on July 6 that it expects operating profit for the three months ended in June soared fivefold from the previous quarter, to as much as $2 billion. Samsung, which is also the world's top memory chipmaker and the second-largest mobile-phone maker, gave no details in its earnings guidance, but industry watchers say the surprise came from its highly competitive TV business.
The rapid improvement in profitability also underlines the resilience of Samsung. "The company has taken advantage of its better cash position and a weak Korean currency to keep pouring money into marketing, which makes Samsung among the first beneficiaries of a recovery," says Park Kyung Min, chief executive officer at asset manager Hangaram Investment Management. The Korean won has lost its value against the dollar by 26% since the beginning of last year.
"CONFIDENT" TV WILL BE GROWTH ENGINE
The best example is a bet on a new flat-screen TV technology that uses LEDs (light-emitting diodes) as its light source. Even as consumers are tightening their purse strings in the face of looming threats of job losses, Samsung introduced a new line of large-screen LCD (liquid crystal display) TVs sporting LEDs that cost some $600 more than traditional flat-screen units. Samsung President Yoon Boo Keun, who heads the TV business, points out he wanted to create a buzz in the industry to break out of a trap where revenues drop even as unit sales increase.
Then Samsung began an aggressive global marketing campaign costing hundreds of millions of dollars. Its advertising[advertising?:advertising material cutting machine] and promotion events for the new generation of high-definition LED-lit TVs focused on three factors: it's ultraslim (thinner than 3 centimeters); its LED technology makes picture quality sharper and brighter; and the new TVs cut power consumption by about 40% compared with old LCD TVs.
With consumers willing to pay a premium for an LED-lit TV, Yoon's visual display department, which also includes computer monitors and home theater systems, was a star player in the second quarter. "The bulk of Samsung's second-quarter profits came from its mobile phones and TVs," reckons Lee Hak Moo, a corporate analyst at brokerage Mirae Asset Securities in Seoul. "Handsets have been a major profit center in recent years, but TVs beat everybody's expectation."
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