Samsung Electronics profit drop

Samsung Electronics on Tuesday flagged a second quarter drop in operating profit that missed analyst estimates after sales of its newest flagship smartphone failed to meet expectations.

In an earnings estimate, the giant South Korean smartphone and memory-chip maker predicted operating profit of around 6.9 trillion won ($6.1 billion) for the April-June period, down just over 4.0 percent from a year earlier.

That compared with the 7.2 trillion won average of 33 analyst estimates compiled by Bloomberg News, but still marked a 15 percent increase from the first quarter.

Tuesday's estimate, which comes ahead of audited results to be released later in the month, did not provide a net income figure.

It also gave no breakdown of divisional earnings.

The company has seen profits sag since late 2013 due to heightened competition in an increasingly saturated smartphone market that it had dominated for years.

Samsung has faced a double challenge from US arch-rival Apple in the high-end smartphone market and rising Chinese firms like Xiaomi in the mid- and low-end market.

Hopes of a turnaround had largely been pinned on the sixth edition of its flagship smartphone launched in April.

The Galaxy S6 and S6 Edge with a wraparound screen received rave reviews, but company predictions of record sales fell short of expectations, partly due to production and supply constraints.

- Disappointing smartphone sales -

Overall sales were around 48 trillion won in the second quarter, Samsung said Tuesday, compared with the 53 trillion won average of 37 estimates.

"Shipments of the Galaxy S6 were clearly not as strong as had been hoped for," said Greg Roh of HMC Investment Securities Co., citing manufacturing delays that trimmed sales of the S6 Edge.

Samsung's share price, which has fallen 7.2 percent this year, was largely unchanged in early trading following the earnings estimate.

In an effort to see off smaller rivals nipping at its heels in emerging markets, Samsung slimmed down its line of low- and mid-end smartphones last year, and ramped up production of those that remained in a higher-volume, lower-price strategy.

At the same time, its semiconductor unit has managed to mitigate some of the slump in the mobile division, posting strong profit growth in the least few quarters.

The slump in Samsung's once stellar growth has coincided with preparations for a once-in-a-generation leadership change, with control of the family-run conglomerate's main business expected to pass from ailing patriarch Lee Kun-Hee to only son Lee Jae-Yong.

Faced with what will be a massive inheritance tax bill, Lee and his siblings have been seeking to pare down and simplify the byzantine system of cross-holdings that link the many branches of the Samsung empire.

The anticipated reforms have helped keep Samsung on the "buy" list of many analysts, despite the recent profit downturn.
Source: AFP