Samsung profit falls as smartphone sales slow

Jul 31, 2014 by Youkyung Lee

(AP)—Samsung Electronics Co. reported a bigger-than-expected fall in second quarter profit on Thursday and said it was uncertain if earnings from its handset business would improve in the current quarter.

Samsung warned earlier this month that the second quarter would be its worst in two years as rapid growth in sales had faded. The company particularly struggled to compete in cheap smartphones, currently the fastest growing part of the global smartphone business. Samsung shares dived 4 percent in Seoul.

Its net income for the April-June quarter dropped 20 percent to 6.3 trillion won ($6.1 billion) from 7.8 trillion won a year earlier. That was the lowest since the second quarter of 2012. Analysts surveyed by FactSet forecast 6.5 trillion won income.

Sales fell 9 percent to 52.4 trillion won while operating profit sank 25 percent to 7.2 trillion won, in line with Samsung's guidance earlier this month.

Robert Yi, head of investor relations, told a conference call that Samsung had higher marketing expenses as competition increased in mid- to low-end smartphones and because it tried to clear old inventory before the release of updated smartphone models in the fall. Tablet computer sales also fell, he said, citing weak overall demand.

Samsung sold 95 million mobile handsets in the quarter and smartphones were close to 80 percent of those sales, Yi said. It sold 8 million tablet PCs.

Research firm IDC estimated that Samsung shipped 74.3 million smartphones during the second quarter, down 4 percent from a year earlier, even as the overall smartphone market expanded 23 percent. Chinese vendors, Huawei and Lenovo, were the companies that drove growth in global smartphone sales.

Samsung was still the world's largest supplier of smartphones but its global market share fell to 25 percent from 32 percent. The company's smartphones use Google's Android operating system.

With lower handset sales, Samsung's profits also took a hit. Samsung's mobile business recorded 4.4 trillion won in operating profit during the second quarter, the lowest in two years. Previously, Samsung's mobile business contributed about 70 percent of its overall profit. That fell to about 60 percent in the second quarter.

Analysts said Samsung struggled in developing nations as consumers using handsets powered by the popular Android operating system were more willing to try devices from other brands. Switching between different Android devices has become easier and cheaper than before for consumers, reducing loyalty to one brand.

Smartphones have become ubiquitous in developed markets and are becoming so in emerging markets, making it harder to find people who are buying a smartphone for the first time, said Melissa Chau, senior research manager at IDC, a market research firm. "Just staying on Android is not going to keep you in one brand."

That would make it more important for Samsung to develop unique services for its Galaxy phone users or to push use of its own software that does not rely on Google's Android.

Samsung has stumbled in its efforts to make even a small move away from Android. Earlier this week, it delayed the release of the first smartphone powered by Tizen, its own mobile operating system, just two months after announcing a launch date. It did not give a future schedule.

For the third quarter, Samsung forecast it would sell more handsets as there is usually higher demand for consumer electronics during that period. But it would also face higher competition.

Apple Inc. is expected to release a new iPhone with a larger screen, the key feature in Galaxy phones that helped Samsung lure consumers from the iPhone.

"Looking ahead, the second half of 2014 will remain a challenge," Samsung said in a statement.

In the previous years, Samsung released one high-end model during the third quarter. But this year, Samsung hinted that there will be one additional high-end model.

Kim Hyunjoon, senior vice president at Samsung's , told the conference call that several new handset models are in the pipeline for launch in the next few months.

They include a new flagship model in the large-screen category and another premium phone with new design and materials. Kim did not elaborate what the new materials would be. In 2013, Samsung unveiled a smartphone with a curved display that was released in South Korea only.

Explore further: Samsung delays Tizen smartphone sales launch

not rated yet
add to favorites email to friend print save as pdf

Related Stories

Samsung delays Tizen smartphone sales launch

Jul 28, 2014

Samsung Electronics said Monday it would postpone the roll-out of its new smartphone based on Tizen, a home-grown operating system aimed at breaking away from Google's Android system.

Samsung earnings hit by slowing China sales

Jul 08, 2014

Samsung Electronics Co. said operating profit declined to a two-year low in the second quarter, hit by the strong local currency and slowing demand for smartphones in China.

New Samsung phone marks break from Android

Jun 02, 2014

Samsung announced Monday the launch of a new smartphone based on its own operating system, in a step towards independence from the Google Android platform that dominates its popular handsets.

Samsung's 2Q profit record high but below forecast

Jul 26, 2013

(AP)—Samsung Electronics reported a record-high profit for a sixth straight quarter but still disappointed investors who had higher expectations for the world's largest smartphone maker.

Recommended for you

Alibaba makes Wall Street debut

20 hours ago

Alibaba made its long-awaited Wall Street debut Friday on the heels of a record stock offering that opens the door to global expansion for the Chinese online retail giant.

Alibaba IPO to boost employee fortunes to $8 bn

23 hours ago

Employees of Chinese e-commerce giant Alibaba will see their fortunes swell to nearly $8 billion as the company prepares a massive US stock offering that could be valued at $25 billion.

Alibaba mega IPO caps founder Jack Ma success tale

Sep 19, 2014

When Jack Ma founded Alibaba 15 years ago he insisted the e-commerce venture should see itself as competing against Silicon Valley, not other Chinese companies. That bold ambition from a time when China was ...

User comments : 0