Samsung warns of 60% fall in profit

Quarterly profits at Samsung Electronics are expected to drop by 60% due to increasing competition from smartphone rivals

Samsung Electronics has rung alarm bells ahead of its third-quarter results announcement, warning that its operating profit will likely drop by 60%.

Samsung said it had clarified its forecast to “mitigate” market uncertainty ahead of the full quarterly statement, which is due at the end of October 2014.

The Korean electronics giant predicted operating profits would fall to 4.1tn won (£2.5bn), compared to the year-ago record of 8.2tn won, while sales of approximately 47tn won will be down 20.5%. Both figures are substantially below analyst expectations.

Samsung faced pressure from a number of factors, particularly the decline in its mobile business due to intensifying competition on smartphone handsets from Chinese competitors.

Samsung reported that, even though sales of its devices increased slightly during the third quarter, operating margins were down due to marketing expenses and aggressive promotional discounting as Samsung attempted to keep up with the competition.

Slower sales of its flagship high-end Galaxy devices and price decreases on cheaper, older handsets meant average selling prices across Samsung’s mobile business were down.

Huawei, arguably the biggest threat to Samsung’s apple cart, has ambitions to become a major player in the smartphone market, saying it believes Samsung has the edge in hardware, and stating loud and clear that it means to aggressively pursue that channel.

Meanwhile, Samsung reported the downward trend on smartphones was also hurting its OLED and Systems LSI semiconductor businesses.

Elsewhere, weak seasonal demand for consumer electronics, such as TVs, was not helping matters, said Samsung, although its memory business saw some improvement led by strong demand for PCs and servers, and price stabilisation as supply and demand conditions equalised.

Samsung said it expected some uncertainty to persist into the fourth quarter, but said it hoped new smartphones and the traditional Christmas rush for new TVs would improve the overall picture.

Its new high-end smartphones will feature “new materials” and “innovative designs”, while it will position the mid- and low-end devices more competitively on both specification and price in a bid to win back some of the market share lost to rivals.

Samsung has recently been embroiled in a legal bust-up with Microsoft over the alleged breach of an IP-sharing contract in which Samsung agreed to pay Microsoft royalties on Android sales while at the same time agreeing to support Microsoft Windows Phone OS.

Microsoft claimed Samsung used its own acquisition of Nokia as an excuse to breach the contract.

The dispute raised its head a day before Samsung and Apple reached a settlement to withdraw their lawsuits against one another outside the US.

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