Samsung Electronics profit seen bottoming in third quarter ahead of slow recovery

Wed Oct 1, 2014 5:06pm EDT
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By Se Young Lee

SEOUL (Reuters) - Samsung Electronics Co Ltd's (005930.KS: Quote) profit is seen weakening further in the third-quarter, underscoring the downturn in its market-leading smartphone business and piling pressure on the firm to deliver a revamped product lineup.

Analysts forecast the world's largest smartphone maker, which is due to give its July-September earnings guidance on or around Oct 7, to show its worst operating profit in nearly three years, with a slow recovery seen starting in the fourth quarter.

And for the first time in more than three years, Samsung's semiconductor business could bring in more profits in the quarter than its erstwhile cash-cow handset business, some analysts say.

"What's expected now is for the company to hit bottom and gradually recover, but we have now seen smartphone-related earnings peak," Korea Investment Trust Management fund manager Baik Jae-yer said.

Analysts and investors say Samsung's days of massive smartphone-driven earnings are over, as Apple Inc (AAPL.O: Quote) grabs the lion's share of profits at the high end of the market and Chinese makers of cheap and feature-rich smartphones, like Lenovo Group Ltd (0992.HK: Quote) and Xiaomi Inc, erode margins at the low end.

Samsung, however, is not on the same slide to irrelevance as Nokia Oyj NOK1V.HE, the Finnish company that sold its once-dominant phone business to Microsoft (MSFT.O: Quote) in April, the analysts said, as it has a track record for quickly correcting its mistakes.

"We used to look at the smartphone market from an Apple vs. Samsung framework, but it turns out that it was really Apple vs. Android," IBK Securities analyst Lee Seung-woo said, referring to Google Inc's (GOOGL.O: Quote) mobile operating system which powers most smartphones including Samsung's.

"Samsung used to take all the profits from Android because its rivals were doing such a poor job. Now there's very little difference between Samsung and its Android rivals," Lee said.   Continued...

A woman takes a picture outside the Samsung stand at the Mobile World Congress in Barcelona February 24, 2014.   REUTERS/Albert Gea