(Refiled with additional RICs)
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By Richard Beales
HONG KONG, July 6(Reuters Breakingviews) - Samsung Electronics (005930.KS) is shaping up as a credible challenger to Apple (AAPL.O). Yet investors value the $170 billion company more like a lemon. Even as Samsung estimated on Friday that it made a record $5.9 billion in operating profit in the second quarter, shares in the Korean firm slipped 2 percent. Samsung deserves more credit.
There are some distractions. Samsung’s lower margin businesses, like making TVs and home appliances, are at risk from weak demand in the troubled euro zone in particular. And there have been worries â€" probably overdone â€" about the potential impact on its chip sales if Apple starts buying key components for its iPhones and iPads elsewhere. The company’s estimate for second-quarter revenue fell just short of expectations.
Yet the Korean giant’s mobile device business is arguably the closest rival anywhere to the U.S. smartphone giant. Eyeball the commuters in early-adopting, tech-savvy cities like Hong Kong, and Samsung’s latest gadgets are everywhere. The Galaxy S III smartphone is in great demand and therefore in short supply, the kind of “problem†the Silicon Valley firm sometimes has. And Samsung’s brand just came out top in Asia in a new ranking by Campaign Asia-Pacific, with Apple’s the runner-up.
The mobile division is the powerhouse behind Samsung’s growth. The company’s overall second-quarter operating profit was up nearly 80 percent on last year.
Instead of being rewarded for that growth, Samsung has developed another problem shared to a lesser extent by Apple: It looks undervalued. Samsung’s shares trade at just over seven times the coming 12 months of earnings, as estimated by Thomson Reuters’ StarMine. That’s only half the median multiple of its sector, albeit that includes companies with a range of business models. Apple trades at just over 11 times estimated earnings, and even that doesn’t fully reflect its surging growth.
Maybe investors are confused by the combination of an Asian Apple with Samsung’s more mundane businesses. Whatever the reason, they may be missing the wood for the trees.
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CONTEXT NEWS
- In earnings guidance on July 6, Samsung Electronics, the world's largest maker of TVs, smartphones and DRAM memory chips by volume, estimated that operating profit jumped 79 percent to 6.7 trillion won ($5.9 billion) in the April to June quarter from a year earlier.
- Sales of the Galaxy smartphone drove the record performance, though the South Korean tech giant expressed concern that Europe's debt crisis is denting demand in its biggest market for televisions and home appliances.
- The average forecast in a Reuters survey of 23 analysts was for 6.67 trillion won of operating profit. That forecast had been revised down slightly due to delays in shipping the latest Galaxy S III smartphone.
- Samsung estimated its second-quarter revenue at 47 trillion won, just below a 50 trillion won forecast.
- The company was due to release its full second-quarter results towards the end of July â€" the first report since former components chief Kwon Oh-hyun took over as chief executive.
- In a ranking of Asian brands by Campaign Asia-Pacific released on July 5, Samsung claimed the top spot overall for Asia-Pacific, beating Apple into second place overall â€" though the Silicon Valley technology firm headed the rankings in China.
- Reuters: Samsung sees record $5.9 billion second-quarter profit, sweats over euro[ID:nL3E8I54F4]
- Campaign Asia-Pacific release: link.reuters.com/dub39s
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(Editing by John Foley and Katrina Hamlin)
((richard.beales@thomsonreuters.com)) Keywords: BREAKINGVIEWS SAMSUNG PROFIT
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