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Samsung expects Q3 profit, sales to drop

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Staff writer ▼ | October 7, 2014
Samsung Electronics revealed in a regulatory filing that it expects operating profit for the third quarter to drop 60% year-over year, and also sees a 21% decline in quarterly sales.
Samsung Electronics
Big problems   60% drop in profit, 21% in sales
Samsung is expected to report the lowest quarterly operating profit since the second quarter of 2011 amid the continued slowdown in its Galaxy smartphone business. It will also be the biggest drop in operating profit since 2009, and will mark its fourth consecutive quarter of decline.

It will also be the lowest quarterly net sales since the first quarter of 2012, and its third consecutive quarter of sales decline.

Samsung is said to continue losing market share to U.S. rival Apple as well as Chinese brands amid improving product quality from manufacturers such as Huawei Technologies, Xiaomi, and Lenovo Group. However, Samsung reportedly continues to hold the largest market share for smartphones, followed by Apple.

Samsung's operating profits will stay just above the 4 trillion won mark for the first time in three years. The firm's operating profits had surpassed the 10 trillion won mark for the first time in the third quarter of 2013 and it has been down hill since then.

According to a regulatory filing, Samsung estimates operating profit for the third quarter to be 4.10 trillion won or about $3.8 billion, below analysts' expectations of 4.3 trillion won.

The forecast is 59.7 percent lower than the company's year-ago quarter operating profit of 10.16 trillion won, and also represents a 43.0 percent drop from second-quarter operating profit of 7.19 trillion won.

Operating margins for Samsung's flagship mobile devices business, which generates about 60 to 70 percent of the company's gross operating profits, have been waning recently due to the company's smaller presence in the high-end market where Apple operates as well as higher marketing expenses and intense competition from Chinese players.

Samsung also projected quarterly sales to decrease 20.5 percent to 47 trillion won from last year's sales of 59.08 trillion won, below Street estimates of 50.3 trillion won. Total sales is also seen to decline 10.2 percent sequentially from the previous quarter's sales of 52.4 trillion won. However, Samsung did not provide earnings or sales figures for each of its business divisions.

Samsung's chip business is continuing to showing improved earnings, benefiting from solid demand for NAND flash memory chips used in mobile devices. The company is now forced to rely more on its chip business to drive future earnings growth.

Samsung announced plans to invest 15.6 trillion won or $14.7 billion by 2017, to build a new chip-manufacturing plant in South Korea. Increasing demand for mobile devices is translating into increase in orders for mobile chips, which Samsung should be able to cash in on with the new plant in operation.