Samsung shares tumble 6.2% on worries about Galaxy S4 sales

Samsung Electronics lost $12 billion (€9 billion) in market value yesterday, hit by brokerage downgrades that have underscored concerns about slowing sales of its flagship Galaxy S4 smartphone.

The share slide of more than 6 per cent comes after it recently introduced two stripped-down versions of the S4, fanning worries that profit margins for its mobile business will suffer. It also follows a report that arch-rival Apple will begin a trade-in program for iPhones.

The new stripped-down S4 models will help it widen its lead in the global smartphone market and fend off Chinese competitors, but some fear that the South Korean tech giant is trading in profits for volume.

Analysts say sales momentum for the high-end version of the S4, which became its fastest selling smartphone since its launch in late April, has slowed.

"Sales of high-end handsets are lagging behind expectations, while low- to mid-end handsets are selling briskly worldwide," said Kim Young-chan, an analyst at Shinhan Investment.

“As the portion of low- to midrange handsets is expected to increase in Samsung’s overall mobile phone business, this has also sparked concerns about thinning margins and lower growth.”

Apple will start a programme this month to allow users to trade their older iPhones for the newest model, Bloomberg cited people familiar with the plan as saying, a first for the company as it prepares to introduce a new version of the smartphone.

“With Apple widely expected to announce an older iPhone trade-in programme and also a new cheaper iPhone, overall growth prospects for (Samsung’s) smartphone business have dimmed,” said Kim Hyun-yong, an analyst at E*trade Securities.

“Second-quarter results will be solid but we have to see whether the trend can be sustainable going forward.”

Shares in Samsung finished down 6.2 per cent, wiping out 14 trillion won of value to bring its market cap to 210.2 trillion won (€142 billion).

It was their biggest daily percentage drop since late August when the stock tumbled more than 7 per cent following a US jury verdict that it infringed on Apple’s patents.

Brokerage downgrades this week included a 4.8 per cent cut in Samsung’s price target to two million won from Woori Securities. It cited weakening profit growth for Samsung’s mobile business, which generates about 70 per cent of its total earnings.

It also cut 2013 and 2014 earnings per share forecasts by 9.2 per cent and 11.7 per cent respectively.

JPMorgan slashed its earnings estimates and said monthly orders for the S4 have been cut by 20-30 per cent to 7-8 million from July due to weak demand in Europe and South Korea. – (Reuters)