Samsung Released their quarterly earnings guidance estimating 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, also marks the third straight quarter of annual profit decline and was far below market expectations as sales fell for the first time since the w9kcompany adopted new accounting standards in 2009.
According to Reuters
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 KRW=, 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.
What is the reason?
Though the South Korean company said it saw better business conditions in the third quarter, it faces slowing market growth, intensifying price competition at the lower end and the looming threat of Apple Inc’s (AAPL.O) next iPhone.
“The earnings deliver a harsh reality check to Samsung that it is not Apple, but Samsung. Its strategy of selling phones at expensive prices will not work anymore, as Chinese rivals also offer good enough phones at much cheaper prices,” Lee Seung-woo, a technology analyst at IBK Securities, said.
“Samsung needs to review its smartphone strategy,” he said.
What should they do?
Some analysts said Samsung may have no choice but to slash prices for mid-to-low tier devices, where growth is stronger, to go after Chinese rivals such as Huawei Technologies Co Ltd [HWT.UL] and Lenovo Group Ltd (0992.HK). While that would help defend market share it would also hurt margins, curbing its earnings recovery in the short term.
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