Samsung forecasts massive drop in profits

Samsung Galaxy Alpha front top
Blip or no blip, Samsung’s dire profit forecast for Q3 will likely have executives at the company sleeping less comfortably as they look for ways to prevent the situation from sliding out of control.

Operating profit for the quarter ending September 30 is expected to come in at 4.1 trillion won ($3.8 billion). While this may sound healthy enough, it marks a hefty 60 percent drop on the same quarter a year earlier. The official results will be released by the company later this month.

Samsung, which sells a huge range of electronics, derives the majority of its profit from its mobile business, a sector that right now is as competitive as it’s ever been.

The Korean tech giant has been hit in part by slower-than-expected sales of its high-end handsets – its flagship Galaxy S5 phone among them – as the mobile sector in developed markets nears saturation point. Samsung is also facing increasing competition from cheaper devices offered by local firms in emerging markets like China and India.

In Q2 of this year, for example, Beijing-based Xiaomi knocked Samsung off the top spot to become the biggest seller of smartphones in China, with 14 percent of the market compared to Samsung’s 12. In Q1 Samsung enjoyed an 18.3 percent share.

In the US market, meanwhile, Apple and Samsung continue to slog it out, though Apple will be hoping that its new large-screen iPhone 6 devices will be enough to give it the edge over its Korean rival in the run up to Christmas and beyond.

Increased spending on marketing, as well as a lower average selling price for its handsets, have also had an impact on Samsung’s accounts. Sales of its TVs and air conditioners have come under pressure, too, as a strong won and weak yen make some Japanese products more attractive to consumers.

In a statement issued Tuesday, Samsung said it’s gearing up to launch “new smartphone line-ups featuring new materials and innovative designs,” as well as a number of new competitively priced smartphones.

The Seoul-based firm has more recently dived into the wearables market with the launch of smartwatches and other devices in a bid to boost profits.

[Via BBC, Bloomberg]

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