Samsung Profits Slump 25%, Phone + Tablets Sluggish
Samsung predicts operating profit will decline 24.5% for Q2 to 7.2 trillion won, according to earnings guidance released yesterday.
The Galaxy maker also forecast sales to fall 10% for Q2 April to June to 52 trillion won. It is the third quarter consecutive the technology firm’s earnings have fallen. However, Samsung expects a better Q3 on the back of new smartphone releases.
Both results were far below analysts’ expectations of 8.1 trillion-won profit and 54 trillion won sales at the worlds biggest smartphone maker, which makes the majority of its profit from its mobile division.
The mobile giant witnessed a slowdown in the smartphone market with increased competition in the Chinese and some European markets, it said in a statement.
Samsung also saw an increase in inventory due to price competition and a weaker demand for 3G devices ahead of the expected growth of 4G LTE products in the Chinese market.
Tablet sales were “sluggish” due to a longer replacement cycle than that of smartphones. In addition, higher shipments of 5-to-6 inch large screen smartphones replaced demand for 7-to-8 inch tablets.
The lower than expected sales comes despite Samsung releasing its hero smartphone Galaxy S5 in April and has just unveiled a new line of Tab S tablets flagged as ‘iPad killers’.
However, new threats in the form of Chinese players like XTE and Lenovo as well as the ongoing threat from Apple iPhone 5, which continues to outsell S5 in markets including the US, UK, despite Samsung giving away almost $600 worth of freebies with the new 5 inch Galaxy.
“The Samsung Galaxy S5 has had some success in attracting former iPhone owners across Europe,” says Dominic Sunnebo, strategic insight director at Kantar Worldpanel ComTech.
However, a larger screen iPhone 6 is widely viewed as a major threat to Samsung’s mobile business.
“In general, consumers buying the Galaxy S5 were primarily attracted by its large screen size. However, this is something Apple is likely to address with the rumoured larger screen iPhone 6 launch expected in late September,” he added.
Operating profit likely rose in Samsung’s TV division, analysts told Bloomberg, although weakening demand prior to the World Cup likely squeezed margins as Samsung looks to popularise 4K UHD and Curved TV’s in a fiercely competitive market.
Last week, the TV giant announced it would be ending Plasma TV production to focus resources elsewhere.
Samsung “cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter,” the company said in a statement.
The company “will continue to expand its B2B businesses and looks forward to exceeding consumers’ expectations by offering the most innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices.”