Samsung Electronics Co Ltd share price down, Q2 smartphone sales hit by stiff competition

Samsung Electronics Co Ltd, the worlds largest smartphone manufacturer, posted Q2 earnings today, revealing a slump in sales and profit for its phone division, dragging the overall performance down, despite a significant improvement for other units.

The South Korean giant reported the worst net profit in two years at 6.25 trillion won (about $6.1 billion), down 17.47% on a quarterly basis and 19.56% annually. The profit declined on total sales of 52.35 trillion won, which dropped 2.48% on a quarterly basis and 8.89% annually. The companys return on equity plummeted to 16%, down from 20% for Q1 and 24% from a year ago. The company also said that a stronger Korean won hurt margins, “amounting to about 500bn won in missed revenues”.

“The second quarter was affected by several factors including the slow global sales of smartphones and tablets and escalating marketing expenditure to reduce inventory,” Samsung said in a statement.

Mobile phones sales, which account for more than half of Samsungs revenue, dropped 12.28% QoQ and 21.31% on an annual basis to 27.51 trillion won. Operating profit in the division suffered even more, declining 31.26% from a year ago to 4.42 trillion won, as the company had to spend more on marketing, amid declining demand in Europe and growing competition in China.

Researchers at US-based IDC said on Wednesday that Samsungs smartphone market share declined to 25%, down from 31% a year ago.

“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.

Other divisions, however, scored significant improvement. The consumer electronics unit added 14.84% in revenue on a quarterly basis and 1.72% annually to 13.00 trillion won. The increase was said to be partially driven by the FIFA World Cup event, which led to a surge in TV demand, in addition to successful new model launches.

Meanwhile, the so-called “device solutions” (DS) unit, which manufactures memory cards and displays, reported 16.23 trillion won in sales, up 4.31% QoQ, though down 4.81% annually.

The companys Q3 guidance did not offer much support either, as executives saw further competition hurting earnings for the major smartphones division, though the DS outlook was kept positive.

“There needed to be a positive guidance for third-quarter results but it looks like the company is saying the outlook isnt too bright aside from its semiconductor business,” IBK Asset Management fund manager Kim Hyun-su said for Reuters.

The company said it expects growing worldwide demand for handhelds and consumer electronics, though with rising competition. DS were projected to see strong demand, while displays were suggested to remain steady.

Samsungs report comes after Apple, the US giant and top competitor of the South Korean company, posted a bright Q2 log last week, with a 6% overall rise in revenue, and a gross margin of 39.4%, equal to Samsungs 39.5%.

Samsung Electronics Co Ltd closed 3.73% lower in Seoul today, at 1 343 000 won, for a market capitalization of 228.48 trillion won (about $222.28 billion).