Samsung forecasts 60% fall in quarterly profit

Oct 07, 2014, 1:33 AM EDT
The logo of Samsung Electronics is displayed on a glass door at their headquarters in Seoul on November 6, 2013.
AFP/Getty Images

Samsung Electronics has forecast a 60% fall in quarterly operating profit from a year ago, missing estimates, because of slowing Galaxy smartphone sales. The BBC writes:

The world's biggest mobile phones and TV maker said it expects an operating income of 4.1tn won ($3.8bn; £2.5bn) for the three months to September. That is below analysts' expectations for earnings of 5.2tn won.

The company's full financial results will be released later this month. Samsung's mobile division, its biggest business, has been struggling to maintain its dominance against rivals such as Apple and Chinese smartphone-makers Xiaomi and Lenovo.

Its flagship Galaxy smartphone line has been losing market share to cheaper models that also have large screens and multiple features. The South Korean company said quarterly sales amounted to 47tn won, which was below analyst estimates for 50.3tn won.

"Smartphone shipments increased marginally amid intense competition," Samsung said in a statement. "However, the operating margin declined due to increased marketing expenditure and lowered average selling price."

The company also said it is "preparing new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid-to-low end smartphones".

Samsung Electronics Co. plans to invest 15.6 trillion won ($14.7 billion) to build a new cutting-edge chip-manufacturing plant in South Korea as it seeks to maintain its lead in memory chips and grow beyond smartphones. The Wall Street Journal reports:

Samsung’s chip unit has become increasingly important to its profit growth as its smartphone business—which accounts for about 60% of its total operating profit — continues to suffer from intensifying competition from low-cost Chinese handset makers.

Analysts expect demand for Samsung’s memory chips to stay strong for the rest of this year amid tight global supply. Samsung said Monday that construction of the new chip plant will begin next year, with operations to start in 2017.

The new plant will be located in Pyeongtaek, a city south of Seoul. Samsung hasn’t yet decided what types of chips it will produce at the plant.

Samsung’s competition with Taiwan Semiconductor Manufacturing Co. is likely to intensify in coming years as they compete to make logic chips for Apple Inc. ’s iPhones. Logic chips are semiconductors that process decisions, as opposed to storing memory, to operate gadgets.

TAGS: Samsung