The world’s biggest smartphone maker is suffering a stunning financial decline in the face of intense competition from Apple Inc and upstart Chinese brands.
In a preview to earnings due out this month, Samsung Electronics Co yesterday said its quarterly profit is estimated to have fallen to its lowest level in more than three years, dragged down by weak sales of its new Galaxy model.
Samsung said the median forecast of July-September operating income was 4.1 trillion won (US$3.8 billion). That was below the median of analysts’ expectations of 5.2 trillion won, according to FactSet, a financial data provider. It would be a 60 percent plunge from a record-high 10.2 trillion won a year earlier.
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Analysts say earnings in the quarter ending last month could suffer their biggest decline in Samsung’s recent history.
The decline in Galaxy sales has hurt demand for Samsung components, such as an advanced display called OLED. High marketing costs are undermining profits.
“The operating margin declined due to increased marketing expenditure and lowered average selling price,” Samsung said in a statement.
The company said it “cautiously expects increased shipments of new smartphones and strong seasonal demand for TV products.”
Analysts say the bigger iPhones released last month will likely take away US customers who favored the Galaxy’s bigger screens. In emerging markets such as India and China, Samsung’s smartphone sales were overtaken by local rivals.
Samsung estimated that July-September sales fell 20 percent from a year earlier to 47 trillion won. That was slightly below analysts’ expectations of 50.4 trillion won.
Quarterly profit from its mobile business, which reached 6.7 trillion won a year earlier, is forecast to be a little more than 2 trillion won, Samsung said.
The company needs to revamp its handset designs, IBK Securities Co analyst Lee Seung-woo said.
“Rather than seeking stability, Samsung should seek to distinguish [its phones] with Galaxy’s design policies,” he said. “The iPhone 6 will be a significant threat to Samsung.”
With growth momentum in smartphones sagging, Samsung is moving to step up its presence in the semiconductor business.
This week, Samsung announced a 15.6 trillion won investment plan to build a new semiconductor fabrication plant in the South Korean city of Pyeongtaek. The construction will begin before summer next year and commence operations during the second half of 2017.
Samsung did not disclose net income or divisional earnings in its quarterly earnings preview.
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