Samsung Electronics is expected to see a better-than-expected earnings in the second quarter as its flagship smartphone ― the Galaxy S5 ― has beaten market expectations.
Analysts and fund managers said they are impressed by the initial sales of the phone, adding that the Korean electronics giant is doing well enough to reduce investor concerns about its mobile business profit margin.
"Against earlier expectations, the S5 was well-received by consumers in the global market. We don't have any plans to advise our big clients to unload their Samsung stock," said a senior fund manager from a U.S.-based investment bank in Seoul in a telephone interview Tuesday.
Samsung Electronics said it shipped 1.3 times as many S5s on April 11, the first day of global sales, as it did S4s when it was launched, with demand for the S5 doubling in some European countries.
Samsung launched the S5 in 125 countries Friday and signed contracts with the top five mobile carriers in the United States, its key market, namely Verizon, AT&T, T-Mobile, Sprint and US Cellular.
The sale of the S5 is crucial for the Korean company, as investors fear it may have lost its grip in the smartphone business with the entry of Chinese budget smartphone manufacturers.
"Samsung's smartphone business has been faring well since the introduction of the first Galaxy mobile phone. The S5 will be a major turning point for Samsung's mobile business. That's why Shin Jong-kyun, the company's mobile chief himself, checks sales figures and stock movements," a senior Samsung executive told The Korea Times.
A Samsung spokesman declined to comment on the sales target for the S5.
However, Samsung insiders said that it aims to ship at least 35 million units in the second quarter of this year to create some 17 trillion won in quarterly revenue from the product.
The insiders said about 63 million S4s have been shipped, but so far, only some 40 million units have been sold. Samsung generates most of its profit from smartphones.
"We believe the mobile phone division performed better than our previous estimates on the back of the strong smartphone and tablet results ― higher units and higher margin ― due to lower marketing spending," said Mark C. Newman, a senior analyst at Bernstein Research in Hong Kong.
Another Samsung executive believes strong S5 sales, according to the company's estimates, will help it gain leverage in its ongoing major patent dispute with Apple.
Samsung is in the second round of a lawsuit filed by its biggest, U.S.-based smartphone rival.
"Samsung attorneys say the continued popularity of Samsung mobile phones is thanks to the consumers' choice, as consumers are attracted by the excellent hardware features and specifications of Samsung products," said another senior fund manager from a Europe-based investment bank in another telephone interview.
"To appeal to the new jury and judge, Samsung needs to provide evidence. That's why the company is heavily pushing the S5," he added.