Wall Street Beat: Mobile Devices, Components Face Economic Hurdles

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Consumer electronics and related components are facing some serious economic headwinds, according to industry analysts and financial results from some companies.

With Samsung and HTC reporting results, DRAM sales inching upward and Micron Technologies buying Elpida Memory, the tech industry's financial spotlight focused on consumer electronics and components this week.

For mobile phones, tablets and other devices, "I think we'll see the growth rate moderate a bit; looking at consumer electronics we saw sales at about 8 percent in nominal terms last year," noted Shawn DuBravac, chief economist for the Consumer Electronics Association, on the sidelines of the CEA's midyear line show in New York last week.

"We'll probably still see single digits this year, lower single digits I think, as some of the real growth categories -- tablets and smartphones -- recede just a little bit," he said. "They will still be very positive and will be big drivers for growth this year, just not to the extent that they were last year in terms of pure growth percentages, and so as the growth slows just a little bit, headline growth slows as well."

Samsung Electronics Thursday announced preliminary results for the quarter ending in June, reporting that operating profit hit a record 6.7 trillion won (US$4.9 billion), on sales of 47 trillion won. The operating profit beat the average forecast of 32 analysts' estimates compiled by Bloomberg, which was 6.58 trillion won. Though Samsung did not provide details, last quarter it said that though there had been a decrease in sales of semiconductor chips and TVs, an increase in profitability in display panels and mobile phones pushed up quarterly operating profit margins.

South Korea-based Samsung is riding high on sales of smartphones, experiencing a surge in sales for its Galaxy family of handsets. For the three months ending in May, Samsung products topped the U.S. smartphone market, beating the mighty Apple and accounting for more than a quarter of all U.S. handset sales.

In the memory market, however, Samsung will get added competition from Micron Technology, which Monday announced that it would purchase Elpida Memory, the third-largest DRAM maker. Micron will pay $750 million and will also take over $1.75 billion in Elpida's debt. With the purchase, Micron becomes a leading supplier for leading smartphone and tablet makers, including Apple.

"The purchase of Elpida represents a huge boost for Micron's status in the DRAM industry," said Mike Howard, a senior principal analyst at IHS. "Micron will see its market share and DRAM manufacturing base nearly double as a result. Furthermore, Micron is gaining access to some excellent mobile DRAM technology, which should greatly improve its product portfolio."

Meanwhile, mobile device maker HTC has not fared well lately. The Taiwan-based manufacturer said Friday that second-quarter net profit dropped 58 percent year over year, to NT$7.4 billion (US$248 million) in the second quarter. HTC's revenue was down 27 percent to NT$91 billion. The company has reported net profit declines for three straight quarters, suffering in the competition against Samsung and Apple.

The Semiconductor Industry Association (SIA) this week announced that worldwide sales of semiconductors reached $24.4 billion for May, a 1.4 percent increase over the prior month. Combined global sales for the March-May period increased over the prior three-month period by the highest rate (6.4 percent) since June 2010, the SIA said. Additionally, May marked the third consecutive month that sales have grown over the previous month -- the longest streak of sequential monthly growth since September 2010.

Nevertheless, sales from May 2012 were 3.4 percent lower than in May last year, and 2012 year-to-date sales were lower across all regions than at this time last year.

"The upward trend of global semiconductor sales is encouraging," said SIA CEO Brian Toohey in the report. "Recent sales totals are in line with industry projections of modest growth for the remainder of 2012, but a sluggish global economy continues to provide substantial headwinds, limiting more robust growth."

The overall outlook jives with what the CEA's DuBravac reports.

"We have these pockets of volatility that seem to emerge out of nowhere," said DuBravac. "Something happens in Europe and then spreads to the U.S. and spreads to other emerging markets like India, China, Brazil, and we have this global contagion around sentiment, if nothing else, even without real damage. Consumers feel the pressure and the headwinds and then retrench, so that's a lot of what we've experienced in the last six months. And I think that's what we'll experience in the next six months -- headwinds of uncertainty will inhibit consumers from making perhaps all the purchasing decisions that they would have otherwise made."

Economic headwinds were in evidence Friday in the U.S., when the government reported that 80,000 jobs were created in June, not enough to lower the 8.2 percent unemployment rate. In afternoon trading, all major U.S. stock market indexes were down, with the Nasdaq computer stock index slumping by 2.2 percent.

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