Samsung Electronics warns of likely 60pc profit fall for quarter
South Korean electronics giant warns that third quarter operating profit may fall 59.7pc to 4.1tr won, its weakest quarterly showing since 2011
Samsung Electronics is heading for its first annual earnings drop since 2011 after it revealed its third-quarter profit would be the lowest in more than three years and said short-term prospects for smartphones were uncertain.
The world's smartphone leader has seen its global market share decline in annual terms for the past two quarters, according to Strategy Analytics, out-classed by Apple's iPhones in the premium segment and undercut by Chinese rivals like Lenovo and Xiaomi at the bottom end.
Even so, Samsung's shares rose 0.96 per cent in Seoul trading yesterday, reflecting expectations that the company's profits have bottomed and will pick up with the launch of cheaper smartphone models in the months ahead.
"Considering the operating profit guidance, it looks like the company dealt with unsold inventory issues during the third quarter," Alpha Asset Management fund manager Hong Jeong-woong said. "I think Samsung's earnings are at a turning point."
Samsung said in a regulatory filing yesterday that operating profit for the third quarter of the year probably fell 59.7 per cent to 4.1 trillion won (HK$29.74 billion), well below the mean forecast of 5.6 trillion in a survey of 43 analysts.
That 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 per cent of its operating profit last year, it "cautiously expects" higher shipments of new smartphones and strong seasonal demand for television products.
Many analysts and investors say the best days are behind Samsung's mobile division as it will need to sacrifice margins to keep cheaper Chinese handsets grabbing more of its turf, even though new products like the Galaxy Note 4 will help boost profits.
Operating margin for the smartphone business fell substantially in the third quarter due to higher marketing expenditure and sharply lower average selling prices, as the proportion of shipments for high-end devices fell and prices for older models dropped, Samsung said.
HMC Investment analyst Greg Roh said Samsung's average smartphone selling price probably fell to US$224 in the third quarter from US$301 in the second quarter. In comparison, Counterpoint analyst Tom Kang says Apple's average sales price might have risen to about US$605 in the third quarter, from US$580 in the second, with the release of new iPhone models.
While smartphone prices would generally trend lower as the cheaper end of the market grew, Roh said Samsung should be able to make up for lower margins with stronger volumes once it revamped its product lineup.
