Samsung gets Heat from Chinese Manufacturers after Earnings Miss Estimates

Samsung Electronics Co.’s second-quarter profit missed analysts’ estimates after misfiring on its Galaxy S6 sales strategy and losing ground in emerging markets to Chinese smartphone brands.

Net income, excluding minority interests, fell to 5.63 trillion won ($4.9 billion) in the three months ended June, the Suwon, South Korea-based company said Thursday. That compares with the 6 trillion-won average of estimates compiled by Bloomberg and is the fifth straight decline. The company doubled its interim dividend and flagged price cuts for S6 models.

Samsung misread demand for the high-end devices released in April, failing to produce enough curved screens for the popular Edge version while the traditional model struggled to challenge Apple Inc.’s bigger iPhones. The company advanced the release date of its next device for high-end users to combat slowing demand in China amid gains by Xiaomi Corp.

“Samsung’s new S6 helped fatten up component profits but it failed to meet the golden timing of demand for the device because of the supply issue,” said Lee Seung Woo, an analyst at IBK Securities Co. in Seoul. “Sales of S6 devices are expected to shrink further in the third quarter and its smartphone slump could spill over to other component businesses, including chips.”

Shares of Samsung fell 1.6 percent to 1,243,000 won as of 9:18 a.m. in Seoul. The stock has lost 6.3 percent this year, compared with a 6.6 percent gain in the Kospi index.

Samsung will pay a dividend of 1,000 won a share compared with 500 won a year earlier

Sliding Share

Operating profit at the mobile phone unit slumped to 2.76 trillion won from 4.42 trillion won a year earlier.

Samsung will add more middle- and low-end models, change pricing on the S6 and cut spending in the phone division.

“Sales momentum for high-end products will be maintained by adjusting the price of the Galaxy S6 and S6 Edge and introducing new premium smartphone models,” the company said in an e-mailed statement.

Samsung, which had projected record sales for the S6, started manufacturing curved screens at a third factory about two months earlier than planned to meet demand for the Edge.

The world’s biggest smartphone maker saw its share in China slide to 8.6 percent in the second quarter from 9.8 percent in the first quarter, according to IHS. Xiaomi had 18.2 percent, followed by Huawei Technologies Co’s 16.2 percent and Apple’s 11.6 percent.

“China is becoming a problem child for Samsung that it needs to fix,” said Neil Mawston, executive director of the research firm Strategy Analytics.

Samsung will sell 40 million units of the S6 models this year, compared with an earlier projection of 43 million, said Lee Jae Yun, an analyst at Yuanta Securities Korea Co. Lee also cut Samsung’s full-year smartphone sales target to 310 million units from 340 million.

Samsung this week announced it would hold a “Galaxy Unpacked” event on Aug. 13, with the company due to unveil its next Note device and a larger S6 Edge.

Processor Chips

Profit at Samsung’s semiconductor business, which makes memory chips and applications processors, was 3.4 trillion won, compared with 1.86 trillion won a year earlier.

Samsung’s chip division was the biggest beneficiary of the new S6 as its mobile unit switched to in-house applications processors and modem chips instead of those from Qualcomm Inc.

The company is said to have won orders for the main processors in the next iPhone.

“Smartphone sales, which drive demand for semiconductors, aren’t likely to rebound sharply in the second half, while overall supply is expected to increase from the first half,” Doh Hyun Woo, a Seoul-based analyst at Mirae Asset Securities Co. said in a July 17 report.

The consumer-electronics division, which oversees TVs and home appliances, posted a 210 billion-won profit in the quarter from 770 billion won a year earlier.

Gains in the won made Samsung products more expensive in export markets, with the South Korean currency advancing about 10 percent against the euro in the 12 months ended June.

Source: Yahoo Finance