Samsung's Profits Disappoint Wall Street, But Why?
What’s one thing Samsung and Apple have in common? Wall Street isn’t currently impressed by either of them. Despite both companies having record breaking quarters in terms of revenue and profit, both tech giants are not receiving much love from Wall Street. In fact, Samsung’s second quarter guidance which was released earlier today didn’t meet expectations, causing the stock to tumble by 3.8 percent.
Samsung reportedly raked in 9.5 trillion won ($8.3 billion) in operating profit, which is up 47 percent from a year ago, and is a record for the company. Plus, Samsung is expected to report higher earnings in the current and fourth quarters as sales of its latest Galaxy S4 smartphone pick up and new products hit the market. Additionally, the prices of memory chips, another industry which Samsung holds the lead, are also expected to remain strong.
Which leads to one wonder: what’s wrong with Wall Street? Record revenue and profit and they are still not happy? Apparently not. Wall Street was expecting an operating profit of $8.8 billion.
Samsung has stated that the company has sold more than 20 million Galaxy S4 devices in the two months since launch, which is more than its previous flagship smartphone, the Galaxy S3. But that’s what I would have expected, especially since Samsung has spent more on marketing than R&D in 2012 for the first time in at least three years.
Where did that marketing spend go?
Well, the Broadway-style launch event that took place in New York back in March probably accounted for a nice chunk of that spend. Also, let’s not forget about the major investments in distribution channels including opening brand experience shops in 1,400 Best Buy stores in the United States. And those commercials. The commercials are everywhere.
In the super competitive mobile industry, you essentially have to spend big in order to convince people to buy your product over a competitors. What’s that saying? Oh yeah, you have to spend money to make money. It appears that’s exactly what Samsung is doing and it’s working. I guess it’s possible they could have spent slightly less on marketing and maybe, they would have been closer to analysts estimates or maybe even have met them, but then again, they might not have.
Either way, Samsung is crushing it right now and they are in a good place business wise too, because they supply so many of the crucial parts (processors and memory) that all mobile devices require, if one part of their business lags a bit they make it up for it in selling parts.
Wall Street needs to get a grip on reality and see that both Samsung and Apple are
crushing pulverizing it. And neither one has even released a wearable computing device yet.