Samsung Electronics heads for annual profit fall after weak third-quarter guidance

Tue Oct 7, 2014 3:12am EDT
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By Se Young Lee

SEOUL (Reuters) - Samsung Electronics Co Ltd is heading for its first annual earnings drop since 2011 after it revealed its July-September profit would be the lowest in more than three years and said short-term prospects for smartphones were uncertain.

The world's smartphone leader has seen its global market share decline in annual terms for the past two quarters, according to Strategy Analytics, out-classed by Apple Inc's iPhones in the premium segment and undercut by Chinese rivals like Lenovo Group Ltd and Xiaomi Inc at the bottom end.

Even so, Samsung's shares had jumped 1.1 percent by 10.29 p.m. EDT on Monday, reflecting expectations that the company's profits have bottomed and will pick up with the launch of cheaper smartphone models in the months ahead.

"Considering the operating profit guidance, it looks like the company dealt with unsold inventory issues during the third quarter," Alpha Asset Management fund manager Hong Jeong-woong said. "I think Samsung's earnings are at a turning point."

Samsung said in a regulatory filing on Tuesday that operating profit for the third quarter likely fell 59.7 percent to 4.1 trillion won ($3.8 billion), well below a mean forecast of 5.6 trillion won tipped by a Thomson Reuters I/B/E/S survey of 43 analysts.

This would mark the South Korean giant's weakest quarterly profit since the second quarter of 2011 and the fourth consecutive quarter of earnings declines on a yearly basis.

Samsung said that although "uncertainty" persisted in the mobile business, which accounted for nearly 70 percent of its 2013 operating profit, it "cautiously expects" higher shipments of new smartphones and strong seasonal demand for TV products.

Many analysts and investors believe the best days are behind Samsung's mobile division as it will need to sacrifice margins to keep cheaper Chinese handsets grabbing more of its turf, even though new products like the Galaxy Note 4 will help nudge profits higher in the current quarter.   Continued...

Visitors walk past the Samsung stand at the Mobile World Congress in Barcelona February 24, 2014.  REUTERS/Gustau Nacarino