Samsung warns of 60% profit drop amid budget competition

08/10/2014

Samsung’s profits have fallen dramatically in the third quarter as cheap Chinese brands eat into its market, as the worlds leading smartphone maker struggles to maintain its dominance amid growing completion from the likes of Apple, Xiaomi and Lenovo.

In a preview of full earnings due later this month, the South Korean company said that its quarterly operating profit will be around 4.1 trillion won (£2.3bn), the lowest in more than three years and far below analysts’ expectations of 5.2tn won. It would mark a 60% fall from the 10.2tn won recorded the year before.

In the report, Samsung said the median forecast of July to September operating income was £2.4billion ($3.8 billion).

That was below the median of analysts' expectations of £3 billion ($4.9 billion), according to FactSet, a financial data provider.

If it happens, this would reflect a 60 per cent plunge from the record-high £6 billion ($9.5 billion).

The decline in Galaxy sales has hurt demand for Samsung components such as an advanced display called OLED.

'The operating margin declined due to increased marketing expenditure and lowered average selling price,' Samsung said. The company said it 'cautiously expects increased shipments of new smartphones and strong seasonal demand for TV products'.

In emerging markets, such as India and China, Samsung's smartphone sales were overtaken by local rivals.

Samsung estimated sales for the July to September period declined 20 per cent from a year earlier to £27.4 billion ($44 billion), slightly below analysts' expectations of £29.3 billion ($47 billion).

This would mark the South Korean giant's weakest quarterly profit since the second quarter of 2011 and the fourth consecutive quarter of earnings declines on a yearly basis.

Samsung said that although "uncertainty" persisted in the mobile business, which accounted for nearly 70 percent of its 2013 operating profit, it "cautiously expects" higher shipments of new smartphones and strong seasonal demand for TV products.

On Monday Samsung revealed plans to spend $14.7 billion on a new chip facility near Seoul - its biggest investment in a single plant - as it leans on its semiconductor business to offset weakness in smartphones.

The company moved the launch of the Galaxy Note 4, a large smartphone with a stylus, to late September from October after Apple unveiled the iPhone 6 and 6 Plus.

It also began sales of the Galaxy Note 4 in China last month, getting an early start in the world's most populous country before Apple.

Last month, Samsung also received upbeat initial responses to its Galaxy Note Edge smartphone, a smartphone with a curved side screen that can display weather, news, apps and other information.

But the supply volume for the Edge smartphone will be limited, likely not giving a big boost to its earnings, analysts added.

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