Samsung predicts 37 per cent drop in fourth quarter profit

Samsung, the world's No. 1 maker of smartphones, said its operating profit and revenue probably fell almost 40 per cent in the quarter ending in December compared with the same period in 2013.

Samsung said it expected an operating profit of about 5.2 trillion won, or €4 billion, in that quarter, down 37 per cent from 8.3 trillion won a year earlier. Sales totaled about 52 trillion won, down roughly 12 per cent from 59.3 trillion a year earlier.

Samsung’s forecast signals the fifth consecutive quarter of decline in operating profit and reflects continuing troubles for the company’s mobile division.

Although it makes more smartphones than any other company, Samsung has had difficulty competing with a swarm of new Chinese rivals, which are offering ever more competitive phones at cheap prices in their home market, now the world’s largest for smartphones.

Despite that, analysts said there was reason to be positive about the earnings estimate, which was better than expected because of the company’s well-performing semiconductor division.

The estimates show investors “where the bottom is” and clear up some uncertainty facing the South Korean electronics giant, according to Arete Research analyst Kim Nam-hyung.

Although Samsung has made its name in recent years selling consumer devices like handsets and televisions, competition in those businesses is cutthroat, and margins are thin. Instead, Samsung’s memory units and processors, which make all manner of gadgets run, are increasingly bolstering earnings.

“More than ever it’s important to realize that Samsung has two very different mobile businesses. The handset division continues to slump even in the face of new products and additional marketing, and there are no signs it’s getting better,” said Ben Thompson, an independent technology analyst at Stratechery.com.

“Handsets broadly, though, continue to be big business, and it’s here that Samsung the component maker is doing very well - so well that they beat estimates despite their handset slump,” he added. Kim said he expected the company’s memory business to perform better in 2015 after some “start-up costs” in 2014.

He also said Samsung would probably rekindle a partnership with Apple to produce the chips for the coming iPhone, a huge boon to both sales and profit.

In the period from July to September, Samsung’s global market share for smartphone sales fell 8 per cent from the same period a year earlier, to 24 per cent, according to the research firm IDC.

Final fourth-quarter results were expected to be released at the end of January.

– Copyright New York Times 2015