Samsung reports worst quarterly profit in over two years

Korean giant flags uncertain earnings prospects for its key handset business

A man holds a Samsung Electronics Co. Galaxy S5 smartphone in an arranged photograph outside a Samsung retail store in the Central district of Hong Kong, China. Photographer: Brent Lewin/Bloomberg

A man holds a Samsung Electronics Co. Galaxy S5 smartphone in an arranged photograph outside a Samsung retail store in the Central district of Hong Kong, China. Photographer: Brent Lewin/Bloomberg

Thu, Jul 31, 2014, 10:39

Samsung Electronics today reported its worst quarterly profit in two years and flagged uncertain earnings prospects for its key handset business, fuelling worries about its ability to return to growth.

The downbeat guidance, as well as Samsung’s decision to keep its interim dividend unchanged from last year, put the shares of South Korea’s biggest company by market value on track for their worst daily percentage decline in nearly eight months.

Samsung expects July-September handset shipments to pick up by 10 per cent from the previous quarter and said it planned to release a new premium smartphone employing a new design and material, underscoring efforts by the world’s largest smartphone maker to regroup.

With its flagship Galaxy S5 smartphone outsold by Apple Inc’s iPhone 5S in May and its cheaper devices feeling the squeeze from Chinese rivals like Xiaomi,

Samsung also vowed to revamp its mid-to-low-tier product lineup with more aggressive pricing and a focus on a smaller set of products.

Those plans were mostly in line with market expectations and Samsung remained downbeat about its third-quarter prospects, with its mobile division expecting a decline in average sales price in the current quarter from the April-June period. “Considering intensifying competition of price and specifications as well as the release of new competing models, it is difficult to expect earnings to improve from the second quarter,” senior vice president Kim Hyun-joon said about the mobile business during a conference call with analysts.

For April-June, Samsung said operating profit fell 24.6 per cent annually to 7.2 trillion won ($7.03 billion), matching its guidance. It was the third straight quarter of profit decline and its weakest result since the second quarter of 2012. Profit for the mobile division fell to 4.42 trillion won from 6.28 trillion won a year ago, also the lowest in two years.

Samsung warned that business conditions for the second half would remain challenging, deepening investor concerns about its prospects.

Samsung shares were down 3.8 per cent earlier, underperforming the wider market’s 0.5 per cent decline.

Reuters