Samsung profit down as smartphone sales disappoint

30 Jul 2015 | Author: | No comments yet »

Galaxy S6 fails to reverse profit decline at Samsung.

South Korea’s LG said on Wednesday its quarterly profit skidded 60 percent, plummeting below estimates, as sales of televisions and smartphones buckled under weaker demand and intense competition from rivals.

Samsung Electronics Co. signaled price cuts for its high-end Galaxy S6 smartphones to combat a market slowdown and surging sales of Apple Inc.’s iPhones after posting a fifth straight profit decline.Samsung announced its quarterly earnings today, and as a result of disappointing sales numbers in this year’s flagship Galaxy S6 and S6 Edge launch the company says it will drop the price of the two phones. “While the IT & Mobile Communications (IM) Division is expected to face a difficult business environment, the 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 statement reads. “New middle- and low-end models will also be introduced, and the IM Division will continue to work on improving efficiency of expenditures.” Samsung’s results were lackluster across all major business units, with the exception of its silicon chip business.Samsung Electronics Co Ltd 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.

LG, the world’s No. 2 TV maker after Samsung, said second-quarter operating profit fell to 244 billion won ($211 million) from 610 billion won in the same period a year earlier. The company’s overall earnings drop during the April-June quarter was 8 percent but it reported a much bigger decline of 38 percent in the mobile division’s income.

Samsung remained the world’s top smartphone seller in the second quarter, but investors and analysts say the South Korean firm’s inability to meet demand for its curved-screen S6 edge smartphones likely cost the firm in April-June. Net income, excluding minority interests, fell to 5.63 trillion won ($4.9 billion) in the three months ended June, missing estimates and triggering the biggest decline in shares in four months. Samsung misread demand for the S6 models released in April, failing to produce enough three-sided screens for the Edge while the regular version struggled to challenge bigger iPhones.

Samsung’s sky-high growth in the smartphone industry came to a sudden stop in 2013 as bigger iPhone models lured buyers from Samsung phones and Chinese phone makers squeezed its sales in China. While LG launched its G4 flagship smartphone in South Korea in late April, analysts said the phone did not offer enough new features to stand out against competing devices, such as Apple Inc’s iPhone 6 models and Samsung Electronics’ Galaxy S6 models. Samsung, the biggest seller of phones using Google Inc.’s Android software, brought forward the release of its next high-end device and is adding cheaper models. “Poor sales of S6 only proved that it can’t beat Apple in brand loyalty among users and just ended up being one of the many Androids,” said Yoo Eui Hyung, an analyst with Dongbu Securities Co. in Seoul. “The price cuts may increase sales, but I highly doubt it could promise bigger profit growth.” Shares of Samsung fell 3.8 percent to 1,215,000 won in Seoul.

Samsung sold 89 million handsets, with smartphones accounting for more than 80 percent of those. “In order to drive up the shipment, we will actively respond to the market, which could have a negative impact on our average sales price,” Park Jin-Young, vice president of mobile communications, said during a conference call. “There’s a possibility that the third-quarter sales price could slightly drop.” Samsung plans to increase its capacity for making curved screens early next year and will supply the displays to other makers, said Lee Chang-Hoon, vice president of the panel-making unit. 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.

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 heir apparent who is under pressure to demonstrate he is capable of leading the Asian consumer technology giant at a time of serious challenges. Their response during the earnings conference call was to “innovate the hardware to lead the market in the premium segment” and to “continue to add services.” The company is scheduled to hold an event on Aug. 13 in New York city, bringing forward its usual product launch schedule by one month.

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