Earnings deliver a harsh reality check to Samsung that it is not Apple

Jul 08 2014, 11:05 IST
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Samsung's strategy of selling smartphones at expensive prices will not work anymore, says an analyst. Samsung's strategy of selling smartphones at expensive prices will not work anymore, says an analyst.
SummarySmartphones sales weigh on Samsung Electronics as revenue guidance disappoints.

The stock later gave back much of that gain.

SAGGING PROFITS

Samsung estimated on Tuesday that its April-June operating profit likely fell 24.5 percent from a year earlier to 7.2 trillion won ($7.12 billion), the sharpest percentage drop since the first quarter of 2011 and the weakest level since a 6.5 trillion won profit in the second quarter of 2012.

The figure, which marks the third straight quarter of annual profit decline, was far below market expectations as sales fell for the first time since the company adopted new accounting standards in 2009.

In a separate statement, Samsung said second-quarter earnings would be hit by slower global smartphone market growth, competition in China, inventory buildup in Europe and the strength of the won, which appreciated by around 9 percent on average against the dollar during the second quarter.

But analysts on average expect the streak of on-year profit declines to extend into the third quarter, with Apple widely tipped to launch a successor to the iPhone 5 to compete with Samsung's high-end smartphones. The prior year's record 10.2 trillion won profit could also be difficult to beat.

"Samsung is most competitive in the mid-to-high end products, but market demand is being driven in the lower-tier end where the biggest issue is price," said HMC Investment analyst Greg Roh.

"I think problems for the company's mobile division will continue in the third quarter."

($1 = 1011.0000 South Korean Won) (Additional reporting by Hyunjoo Jin; Editing by Tony Munroe and Stephen Coates)

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