Samsung Electronics Sees 25% Drop In Q2 Operating Profit

By RTT News, 

( - South Korean conglomerate Samsung Electronics Co. Ltd. (SSNLF) revealed late Monday in a regulatory filing that it expects operating profit for the second quarter to drop 25 percent year-over year, and also sees a ten percent decline in quarterly sales. Both the forecasts significantly missed analysts expectations. The company is scheduled to report financial results for the second quarter later in July.

Suwon, South Korea-based Samsung is expected to report the lowest quarterly operating profit since the third quarter of 2012 amid the continued slowdown in its smartphone business and a strong won. It will also mark its third consecutive quarter of declining operating profit.

The company is said to continue losing market share to Chinese brands amid improving product quality from manufacturers such as Huawei Technologies Co Ltd., Xiaomi Corp. and Lenovo Group Ltd. However, Samsung reportedly continues to hold the largest market share for smartphones, followed by U.S. rival Apple, Inc. ( AAPL ).

Apple is luring premium customers, while budget buyers are being lured by Chinese manufacturers with their feature packed cheap phones. Samsung's competitiveness in emerging markets is also being threatened by the rise of low-cost smartphone makers.

Samsung's operating profits will slip below the 8 trillion won mark for the first time in two years. The firm's operating profits had surpassed the 10 trillion won mark for the first time in the third quarter of 2013.

According to a regulatory filing, Samsung estimates operating profit for the second quarter to be 7.20 trillion won or about $7.1 billion, significantly below analysts' expectations of 8.3 trillion won.

The forecast is 24.5 percent lower than the company's year-ago quarter operating profit of 9.53 trillion won, and also represents an 15.2 percent drop from first-quarter operating profit of 8.49 trillion won.

Samsung, the world's biggest technology firm by revenue, also projected quarterly sales to decrease 9.5 percent to 52.0 trillion won from last year's sales of 57.46 trillion won, just below Street estimates of 52.2 trillion won. Total sales is also seen to decline 3.1 percent sequentially from the previous quarter's sales of 53.68 trillion won.

However, Samsung did not provide earnings or sales figures for each of its business divisions.

Operating margins for Samsung's flagship mobile devices business, which generates about 60 to 70 percent of the company's gross operating profits, have been waning recently due to the company's smaller presence in the high-end market where Apple operates as well as higher marketing expenses and intense competition from Chinese players.

Samsung's mobile devices business has also come under further pressure after Apple struck a deal last year to sell its phones through China Mobile Ltd., through which Samsung has been selling smartphones for nearly seven years in China's$80 billion market.

Meanwhile, Samsung's chip business is showing improved earnings, benefiting from solid demand for NAND flash memory chips used in mobile devices. However, it is facing strong competition from another Korean rival SK Hynix, which is the world's second-largest maker of computer memory chips.

In late April, Samsung reported a 3.3 percent decline in operating profit for the first quarter to 8.49 trillion won from the prior-year period, but net profit grew seven percent to 7.48 trillion won from last year. Total sales for the quarter increased 2 percent to 53.68 trillion won.

Looking ahead, Samsung earnings will reportedly rebound in the third quarter, largely driven by explosive demand for 4G smartphones in China,

Meanwhile, the company is facing difficult times due to the poor health of its Chairman Lee Kun-hee, who is recuperating in hospital after undergoing an emergency operation following a heart attack in May.

Lee is South Korea's richest man with a net worth estimated by Forbes magazine at around $10.8 billion and has a son and two daughters. His son, Jay Y. Lee, serves as vice chairman of Samsung Electronics.

Samsung shares are gaining 5,000 won or 0.39% in Tuesday's regular trading session in Korea and is currently trading at 1,297,000 won on the Kospi on a volume of 0.16 million shares.

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This article appears in: Earnings

Referenced Stocks: AAPL , CHL , HXSCF , LNVGY , SMSN

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