Samsung Elec Q2 profit down 4 pct, hurt by supply shortage for key phone

30 Jul 2015 | Author: | No comments yet »

Samsung Profit Falls as Smartphone Sales Disappoint.

Samsung Electronics offered a downbeat outlook for the third quarter after April-June profit dropped on a supply shortage for one of its main smartphone models, underscoring continued headwinds for the tech giant. SEOUL — Samsung Electronics’s second-quarter profit missed analysts’ estimates after misfiring on its Galaxy S6 sales strategy and losing ground in emerging markets to Chinese smartphone brands.The decline was the fifth straight year-over-year profit drop, as low-cost rivals from China and India continued to weigh on Samsung’s market share and profit margins, particularly for midrange smartphone models.Lackluster demand for its flagship Galaxy S6 smartphone and higher marketing costs led Samsung Electronics to another quarter of falling sales and profits in the April to June period.

Net income, excluding minority interests, fell to 5.63 trillion won (S$6.63 billion) in the three months ended last month, the Suwon, South Korea-based company said today (July 30). Net profit at the company was 5.75 trillion won (US$49 billion), down 8 percent on the same period a year earlier, while sales fell 7 percent to 48.5 trillion won, it said Wednesday. In the key smartphone market, an area led by Samsung until recently, the popularity of Apple’s iPhone 6 and 6 Plus handsets and the rise of lower-cost phones from Chinese vendors squeezed Samsung at both the high and low end of the market.

Samsung misread demand for the high-end devices released in April, failing to produce enough curved screens for the popular Edge version while the traditional model struggled to challenge Apple’s bigger iPhones. The stock has lost 6.3 per cent this year, compared with a 6.6 per cent gain in the Kospi index. “Sales momentum for high-end products will be maintained by adjusting the price of the Galaxy S6 and S6 Edge and introducing new premium smartphone models,” the company said in an e-mailed statement. Overall, the division’s closely watched operating profit margin came in at 10.6%—down sharply from a margin of 15.5% in the second quarter last year, and roughly unchanged from the first quarter of the year.

Overall, annual profit is expected to rebound from a three-year low marked in 2014, thanks to robust semiconductor profits and some stabilization for the mobile business. An average forecast from a Thomson Reuters I/B/E/S survey of 48 analysts compiled prior to Thursday’s results tips this year’s profit at 27.3 trillion won though several have lowered their expectations in recent months.

Samsung’s smartphones are expected to stay prone to further price cuts as the South Korean electronics giant struggles to differentiate its products from the growing pool of competing smartphone models. Xiaomi had 18.2 per cent, followed by Huawei Technologies’s 16.2 per cent and Apple’s 11.6 per cent. “China is becoming a problem child for Samsung that it needs to fix,” said Mr Neil Mawston, executive director of the research firm Strategy Analytics.

In an attempt to cushion the continued slide in earnings, Samsung has advanced the timing for the launch of its flagship smartphone-tablet hybrid device, likely called the Galaxy Note 5 and focused on business users, by about three weeks to Aug. 13 from its usual launch period. Research firm TrendForce last week cut its forecast for 2015 global smartphone shipment growth to 8.2 percent from 11.6 percent, citing a weaker world economic outlook. But sales of the flagship models fell short, dealing a blow to the 47-year-old apparent successor who has not proven that he can revive Samsung’s fortunes. Samsung’s overall profit picture would have been even worse, but for another strong showing from the company’s components business, which includes memory chips, application processors and display panels.

Samsung this week announced it would hold a “Galaxy Unpacked” event on Aug 13, with the company due to unveil its next Note device and a larger S6 Edge. The unit got another leg up from its non-memory chip business, thanks to sales of its application processors—the brains of smartphones—to outside customers, and which it used to power its own line of new premium smartphones. Samsung’s chip division was the biggest beneficiary of the new S6 as its mobile unit switched to in-house applications processors and modem chips instead of those from Qualcomm. Photo: Tanya Lake The “offshore earners” – as they are referred to by Goldman Sachs – have generally been a winner so far for those who have piled in early enough, outperforming the broader ASX 200 by a factor of four this year with a return of close to 20 per cent.

However, if the herd is all going the same way in buying up the stocks that generally perform well as the Australian dollar drops, eventually those stocks become too expensive on a price-earnings multiple basis. Many experts believe the currency won’t fall much further and its natural level is about US70¢ in the low growth and weak commodity prices environment. But what if Reserve Bank of Australia governor Glenn Stevens is granted his wish and the volatile forces in financial markets combine and it slips substantially lower? That was at a time when golfer Tiger Woods won his second US Masters and there was no inkling of any future off-course indiscretions; the first series of Big Brother aired on television in Australia; and fugitive businessman Christopher Skase was still alive, and several months away from meeting the Grim Reaper on the Spanish island of Majorca. Companies need to be managed well and have solid long-term growth prospects to keep attracting support from investors, because without that, a big kick from a falling Australian dollar isn’t going to be much use.

The Goldman Sachs group of offshore earners with better valuations included Incitec Pivot, Bluescope Steel, insurer QBE, Orica, standards group SAI and share registry business Computershare. In highly volatile times, the “defensive” stocks are also highly sought-after and with the twin combination of being a prime defensive stock from running private hospitals and also being a substantial offshore earner, investors in Ramsay Health Care have cleaned up with the company’s share price climbing from $15 to about $65 in just four years. However, it was National Australia Bank that was top of the pile ahead of Commonwealth Bank, and resource sector favourites BHP and Rio were nestled among them, preparing to ride a resources boom that few had predicted.

Aside from some classification issues around whether the likes of Rupert Murdoch’s News Corp should be included, or the Optus owner then known as Cable & Wireless Optus, the names are very familiar and also include beer maker Foster’s Group. The top 10 now doesn’t differ much, which some experts say shows a worrying lack of entrepreneurship, particularly in the technology sector where in the United States the top companies now include Google.

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