After dismal 2014, Samsung charts recovery with new Galaxy phones

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Tech giant Samsung Electronics likely saw January-March earnings slip for the sixth straight quarter, but investors are betting on a rebound this year on healthy chip sales and high hopes for its new flagship smartphones.

Shares in South Korea-based Samsung hit a more-than 21 month high in mid-March as brokerages raised profit forecasts and target prices on its improving business outlook. The stock rose 8.6 percent in January-March following a 12.1 percent gain in the previous period.

Investors believe the Galaxy S6 and its curved-edges variant will sell briskly when they roll out this month following positive reviews, and analysts say new mid-tier phones will boost sales, adding to expectations that the earnings slide in its handset business is ending.

The recovery is also expected to be backed by strong semiconductor sales. In addition to healthy memory chip demand, Samsung’s system chips business is seen returning to profit this year. Its home-grown Exynos processor will power the new Galaxy phones, and Samsung recently added Nvidia Corp as a contract manufacturing client.

“This is a year of recovery for Samsung,” said fund manager Park Sung-jae at LS Asset Management, which holds Samsung shares. “The stock price reflects that sentiment.”

To be sure, recovery is expected to be gradual and well shy of record profits in 2013. The median forecast from a Thomson Reuters I/B/E/S survey of 41 analysts tips first-quarter operating profit at 5.3 trillion won ($4.82 billion), down 38 percent from 8.5 trillion won a year earlier as mobile earnings weakened.

The company will release its first-quarter earnings guidance on Tuesday.

But analysts say the underlying figures should show meaningful improvements, with momentum to pick up further once the Galaxy S6 and S6 edge roll out globally. BNP Paribas analyst Peter Yu expects Samsung to ship 44 million of the new phones this year, compared with an estimated 38 million units of the disappointing Galaxy S5 last year.

For the whole year, a Thomson Reuters I/B/E/S survey of 51 analysts expects profits to rise to 26.5 trillion won from 25 trillion won in 2014 – a reversal from the prevailing consensus early this year for another earnings slide.

“We believe Samsung’s smartphone operations are in a full recovery phase,” Yu said in a note to clients last week, adding that there was an earnings upside of up to $1.5 billion to his 2015 profit forecast of 28.1 trillion won because of the new flagship devices.

Reuters

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