Samsung Electronics Co. estimated Tuesday that its second-quarter operating income fell about 4 percent from a year earlier as weak sales of its newest smartphones fell shy of expectations.
Operating profit reached 6.9 trillion won ($6.13 billion) in the April-June period, down 4.03 percent from the 7.19 trillion won posted a year earlier, Samsung said in a regulatory filing.
The estimate marks a 15.38 percent rise from the operating profit of 5.98 trillion won three months earlier. But the on-quarter growth was mainly attributable to the usual weak seasonal demand in the first quarter, while the full-fledged sales of Samsung’s flagship smartphone began in April.
The figure was out of line with the median forecast of 7.1 trillion won by 18 local brokerage houses polled by Yonhap Infomax, the financial news arm of Yonhap News Agency.
Samsung’s second-quarter sales came to 48 trillion won, down 8.31 percent from 52.35 trillion won a year earlier. The market consensus stood at 52.1 trillion won.
Samsung didn’t offer a net profit estimate for the second quarter. Its finalized earnings will be announced later this month.
Analysts said the dull earnings mainly came as Samsung failed to meet the soaring demand for the Galaxy S6 Edge.
“Despite the market’s initial response toward the Galaxy S6 not being bad, a bottleneck in the supply of the Edge-type product can be recognized as one of the reasons for the weak earnings,” said Lee Ka-keun, an analyst at KB Securities Co.
Officially launched in April, the Galaxy S6 Edge was initially considered as only an upbeat sister of the flagship Galaxy S6 by boasting the industry’s first screen that is curved on both sides.
It was a change from the Galaxy Note Edge, which has a curved screen on only one side.
But Samsung’s latest experiment gained higher-than-expected popularity, with demand outpacing supply for a few weeks after the launch. The Galaxy S6 lineup boasts Samsung’s first built-in wireless-charging batteries.
While the Galaxy S6 Edge became an unexpected hope for Samsung, analysts added the rosy sales estimate for the Galaxy S6 lineup must still be revised down.
“Since the showcase of the Galaxy S6 at the Mobile World Congress, many market watchers gave a 50 to 60 million sales figure for this year. But such outlooks are now revised to 40 to 50 million units,” said Yoo Eui-hyung, an analyst at Dongbu Securities Co.
Samsung’s mainstay handset business has been cited as the top factor for the market behemoth’s recent earnings slump, especially as U.S. rival Apple Inc. weighed on the firm in the high-end segment, while other Chinese players ate into its mid- to low-end models.
Last week, Goldman Sachs also said the “best days” for the smartphone industry are over, adding Samsung’s shipments of its handsets will continue to lose ground down the road. Its sales estimate for 2015 came to 376 million units, down from the 401 million units posted a year earlier. The outlook for 2016 and 2017 came to 371 million and 363 million units, respectively.
Samsung took up 24 percent of the world’s smartphone market in the first quarter, down from 31 percent posted a year earlier, data compiled by Strategy Analytics showed earlier. Apple accounted for18 percent over the cited period.
Analysts, however, said Samsung’s chip business is expected to have performed well on the back of rising returns from mobile and server dynamic random access memory products, especially on the back of mass production of 20-nanometer products.
The system LSI business, which posted losses in the first quarter, is also expected to have turned to the black in the April-June period.
With the chip business already outpacing the mobile segment in terms of operating profits in the first quarter with 2.93 trillion won to 2.74 trillion won, analysts added the trend will continue in the third quarter as well.
Its consumer electronics business, which posted a shortfall in the first quarter, is anticipated to have returned to profit on improved returns from TV sales.
Samsung did not release figures for respective businesses in Tuesday’s earnings guidance report. The final report will be delivered later this month.
“As for the third quarter, the market’s attention is on Samsung’s chip business, which is anticipated to rake in improved earnings from application processors,” said Noh Geun-chang, an analyst at HMC Investment & Securities Co. “In contrast, the smartphone business will remain dull.”
“It is also unlikely that Samsung’s soon-to-be released Note model will have a significant impact on its returns,” Noh added, who suggested the main focus will rather depend on the market’s reaction of a larger edition of the Galaxy S6 Edge.
Earlier this month, the United States Patent and Trademark Office’s document showed Samsung has won the trademark for the “S6 EDGE ,” which indicated the South Korean tech giant may roll out an updated edition of the quirky flagship smartphone that has drawn keen attention from consumers.
But other analysts said the overall trend of the mobile sector being outpaced by the chip segment is inevitable, adding the phablet — a cross between a smartphone and a tablet PC — lineup to be released later this year will not be a game changer for Samsung’s mobile business.
“In the third quarter, situations for the smartphone sector remain challenging, although it won’t suffer from inventory issues like the Galaxy S5 last year,” said Yoo Jong-woo, an analyst at Korea Investment & Securities Co.
“The chip business will continue to gain ground, as Samsung is set to begin the production of the third-generation 3-D vertical NAND flash memories,” Yoo added. “The system LSI segment will also start to generate a full-fledged profit.”
Shares of Samsung Electronics closed at 1,240,000 won on the main bourse Tuesday, up 0.81 percent from the previous session and outperforming the benchmark KOSPI’s 0.66 percent drop. The guidance was released before the local stock market opened. (Yonhap)
