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Samsung profit sharply declines as smartphone strength weakens

July 30, 2014

(Yonhap) — Samsung Electronics Co., the world’s top maker of smartphones, said Thursday (KST) its second-quarter net profit fell 19.5 percent from a year earlier as its mainstay handset business suffered from rising competition in the global market.  

Net income came to 6.25 trillion won ($6.1 billion) in the April-June period, compared with 7.77 trillion won a year earlier, the company said in a regulatory filing.

Sales fell 8.89 percent on-year to 52.35 trillion won in the second quarter. Its operating profit came to 7.19 trillion won, down 24.59 percent from the previous year.

The figures were in line with Samsung’s guidance released earlier this month that estimated the second-quarter operating profit at 7.2 trillion won and sales at 52 trillion won.

Samsung said operating profit of its IT and mobile business division, the company’s main revenue source, fell 29.6 percent on-year to 4.42 trillion won in the second quarter from 6.28 trillion won a year earlier.

Samsung’s device solution division logged an operating profit of 2.09 trillion won, down 28.4 percent from the previous year.

By sector, its chipmaking business posted an operating profit of 1.86 trillion won, improving 5.6 percent on-year.

Its display panel sector’s operating income came to 220 billion won, plunging 80.3 percent from 1.12 trillion won last year.

The operating profit for Samsung’s consumer electronics division came to 770 billion won in the April-June period, rising 79 percent over the cited period.

Industry watchers said Samsung’s weaker-than-expected earnings came from mobile division’s lackluster performance, the weak sales compounded by increasing marketing costs.

Samsung took up 25.2 percent of the global smartphone market in the April-June period, down 7.1 percentage points from the 32.3 percent last year, the latest data compiled by market researcher IDC Corp. showed.

It shipped 74.3 million units of smartphones in the second quarter, down 3.9 percent on-year, according to the data. It compares with Huawei’s sales of 20.3 million units over the cited period, up 95.1 percent from a year earlier.

The rising presence of Chinese players has been cited as major reasons for Samsung losing ground in the mobile division, as they rapidly narrowed gap with traditional leaders in the low-end sector.

The relatively sluggish sales of its flagship Galaxy S5 also limited the mobile sector’s performance. The combined shipment of the Galaxy S5 is estimated at 17 million units over the April-June period, compared with 20 million units for the Galaxy S4 in the first three months since its launch. The Galaxy S5 commenced official sales at end-March.

The stronger South Korean won also limited Samsung’s performance. The won closed at 1,011.80 against the greenback at end-June, up 4.9 percent from the 1,064.70 won posted at end-March.

A higher won inflicts foreign-exchange losses on South Korean exporters, making their goods lose price competitiveness against other global rivals.

Samsung has been carrying out belt-tightening moves since the announcement of second-quarter earnings guidance earlier this month, including cutting unnecessary costs such as business trip budgets, market sources said.

It also plans to reassign 150 to 200 staff members from its head office to its business divisions, relocating employees in finance, human resources and public relations to sectors such as sales and production management.

Executives of Samsung Electronics’ mobile division had returned about 25 percent of their bonuses for the first half of the year earlier this month to the company, due to the division’s lackluster second-quarter earnings.

The company, however, remained unaffected by the hospitalization of Lee Kun-hee, who heads Samsung Electronics, which some had said would work negatively to the company’s business operation down.

Lee, 72, has been hospitalized since mid-May after suffering a heart attack, raising speculations about management transfer to his three children and across-the-board restructuring at Samsung Group.

Industry watchers said Samsung is set to release a new type of smartphone in the third quarter to recoup prior losses from the April-June period. The device is anticipated to be set apart from the Galaxy S or Galaxy Note lineup.

Shares of Samsung Electronics closed at 1,395,000 won on Wednesday, up 0.65 percent from the previous session, when the KOSPI advanced 1 percent.