Samsung Electronics posted second-quarter profit that missed analysts' estimates on increased marketing for its cheaper smartphones as it tries to fend off competition from Apple and Chinese producers.
Net income, excluding minority interests, fell 18 per cent to 6.18 trillion Korean won in the three months ended June, the company said in a filing today. That compares with the 6.83tn won average of 17 analyst estimates compiled by Bloomberg.
The world's biggest smartphone maker is fighting to retain market share in China as Xiaomi and Lenovo snag customers with cheap handsets and Apple wins high-end sales through China Mobile, the nation's largest carrier. Gains in the South Korean currency cut 500 billion won from earnings as display unit earnings plunged on slowing device growth.
“Samsung may be structurally vulnerable with no sensational products in the pipeline that can stand out from rival devices,” Lee Seung Woo, an analyst at IBK Securities in Seoul said by phone. “With Chinese brands catching up fast, the second-half battle seems even tougher for Samsung.’”
Samsung expects the negative effect from currency moves in the current quarter to be lower than the 500bn won hit to earnings in the June period.
The company gets about 90 per cent of its sales from outside South Korea. At the end of the June quarter, the South Korean won was valued about 13 per cent higher than a year earlier, according to data compiled by Bloomberg.
Samsung sold 95 million phones and 8m tablet computers in the second quarter with the company expecting a 10 per cent increase in shipments in the current quarter.
“We will more aggressively respond to the low- to mid-end smartphone market in China, which is growing rapidly now,” Kim Hyun Joon, senior vice president of Samsung’s mobile strategic planning team, told investors today. “There is a concern that it may put further margin pressure on the profitability in the short term, but we will expand our shipment to secure profit.”
The earnings come with chairman Lee Kun Hee entering his third month in hospital after a heart attack in May and as his family prepares to hold initial public offerings for other parts of Samsung Group. The Lee family controls the group through a web of cross shareholdings and may face more than $5 billion of inheritance taxes.
Operating income at the mobile unit, which accounts for more than half of Samsung’s earnings, fell 30 per cent to 4.42tn won compared with the year earlier, according to Samsung. That is the weakest profit since the second quarter of 2012 when it registered 4.13tn won.
Samsung this month said it saw increased competition in China and some European markets, resulting in higher inventories for lower-end smartphones. The company forecast a rebound in the third quarter, which also will benefit its component businesses.
The company shipped 74.3m smartphones globally in the second quarter, down 3.9 per cent from a year earlier, according to IDC data released July 29. Samsung's market share fell 7 percentage points to 25.2 per cent as Lenovo and Huawei Technologies both posted surging growth in China, IDC said.
“China accounts for about 35 per cent of all global smartphone shipments, if you slip there, its hard to make up for that,” said Greg Roh, a Seoul-based analyst at HMC Investment Securities. “Smartphone shipment will rise in the third quarter but it will be a tougher fight for Samsung.”
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