TOKYO: In the marketplace, Samsung Electronics and Apple battle for customers. In the courts, they fight over patents. Yet every time Apple sells an iPhone, Samsung quietly cheers, too.
In addition to being one of Apple's main competitors, Samsung is one of its top suppliers. Samsung provides the application processor in the iPhone 5S - the brains of Apple's flagship handset, and one of its most expensive components.
Because Samsung is not only the biggest maker of smartphones, but also a leading provider of parts to Apple and other gadget makers, company executives say they are confident that the electronics giant can work its way through a difficult period. On Friday, Samsung confirmed that it had sustained a sharp slowdown in sales growth and earnings in the fourth quarter of 2013 and warned that business conditions would remain challenging in the first half of this year. Apple's sales have risen, and those gains have shored up Samsung by lifting the performance of its chipmaking business.
Samsung said that one-time factors were largely responsible for the fourth-quarter weakness. These included a special bonus totaling 800 billion won, or $740 million, that Samsung paid out to employees on the 20th anniversary of a management initiative to improve quality, as well as the effects of a surge in the strength of the South Korean currency, which Samsung pegged at 700 billion won.
"This kind of adjustment is normal for a high-growth industry," said C.W. Chung, an analyst at Nomura, though he added that Samsung's earnings could be "flattish" for the next two years.
Sales in the company's mobile division fell 9 percent in the fourth quarter compared with the third quarter, it said, acknowledging that sales of high-end smartphones had been weaker than expected. The premium segment, in which Samsung offers handsets like the Galaxy S4 and the Note 3, is the most lucrative part of the business, but analysts say it is increasingly saturated.
Samsung faces a renewed challenge from Apple, which introduced two new handsets - the iPhone 5S and a less expensive model, the 5C - in the second half of last year. Apple also recently reached agreements to distribute its phones via the largest mobile carriers in Japan and China.
While analysts said iPhone sales grew strongly after the latest models were introduced, with Apple regaining market share, Samsung's chipmaking business shared the spoils. That unit posted a 7 percent quarter-on-quarter increase in sales, helped by "increased AP shipments for a competitor's new product," said Jee-Ho Baek, Samsung's vice president of memory marketing, in a conference call with analysts. He was referring to application processors, and while he did not mention Apple by name, the allusion was clear.
Samsung's mobile division provides about two-thirds of the company's operating profit, but analysts expect that portion to decline in the coming years as the smartphone business matures. The chipmaking unit is expected to pick up some of the slack. That trend was already apparent in the fourth quarter, when the semiconductor division provided 24 percent of operating profit, up from 16 percent a year earlier.
Overall, Samsung posted net income of 7.3 trillion won, or $6.7 billion, up from 7.04 trillion won a year earlier but down from 8.24 trillion in the third quarter of 2013. Fourth-quarter sales of 59.28 trillion won were up from 56.06 trillion won a year earlier but flat compared with the third quarter of 2013. Operating profit, at 8.31 trillion won, was in line with a forecast issued two weeks ago.
The company said it expected weakness to persist in the first half of 2014, though it insisted that this was because of the "seasonality" of the technology industry, in which purchases are often deferred until later in the year.
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