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Samsung warns investors that Q2 'doesn't look too good'

updated 11:10 pm EDT, Wed June 25, 2014

Analysts fear a drop in profit of up to 16 percent year-over-year

On top of an early warning in April that profits would be down from the year-ago quarter in fiscal Q2, a rare public statement from Samsung's CFO has sent the Galaxy maker's stock tumbling on a warning that the balance sheet "doesn't look too good." The statement was later confirmed by Samsung, amounting to a full-throated warning on earnings that sent the company's stock tumbling nearly two percent, on top of a month-long 8.5 percent decline. Initial blame for the disappointment is centering on sales of the Galaxy S5 flagship smartphone.

CFO Lee Sang-hoon's brief statement to the media was not elaborated on, but the warning came nearly two weeks ahead of Samsung's reporting of its second quarter financials. Analysts have been downgrading the stock steadily on reports that the Galaxy S5 sales had softened alongside other models.



Weakening demand for the company's mainstay -- low-end and mid-tier smartphones -- is also said to be playing a role in what is now widely expected to be a disappointing report. Compounding the issue is Apple's recent Q2 report, in which the company managed to sell far more iPhones than were expected by analysts, leading to record revenues and profits compared to the same period in previous years.

Apple also appears to be slowly gaining share in the high-profit North American market, with its two-and-a-half-year-old iPhone 4S thought to have accounted for 25 percent of sales in the most recent quarter, indicating strong takeup of the model in developing markets. A new survey of US customers indicates that fully half of those expecting to buy or upgrade smartphones in the next three months are expecting to buy an iPhone -- mostly on the premise that Apple will introduce at least one model with a larger display, which surveys indicate could cause significant migration from Android-based phones.

Investment analysts are most worried about what Samsung will report for operating profit. Korea-based KTB Investment & Securities is forecasting a profit drop of 16 percent from the year-ago quarter, and believes shipments will also drop by 12.5 percent, from 88 million a year ago to 77 percent this quarter. Original analyst estimates for Samsung Q2 predicted 90 million smartphones shipped, a 24 percent increase from a year ago.

Samsung introduced the Galaxy S5 flagship smartphone in April, but the model has met with mixed reviews. While the company bragged that it had sold (to retailers) some 11 million units a month later, it could be that sell-through has failed to live up to expectations, causing a drop in demand for more inventory. The S5 has been accompanied by unusually aggressive promotions and special offers for a brand-new, flagship smartphone, and followed with revised-downward guidance in the first month of the quarter, suggesting that Samsung was quickly aware that the S5 would not build on the equally-lackluster sales of the Galaxy S4.



By Electronista Staff
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Comments

  1. ElectroTech

    Junior Member

    Joined: 11-26-08

    The chickens come home to roost.

  1. TheGreatButcher

    Mac Enthusiast

    Joined: 06-11-00

    Hyping units shipped over units sold doesn't work indefinitely.

  1. Truthsayer

    Fresh-Faced Recruit

    Joined: 06-06-13

    Looks like Samesung's "Band-Aid Phone" (aka Galaxy S5) wasn't enough to stop the haemorrhaging...

  1. coffeetime

    Mac Enthusiast

    Joined: 11-15-06

    Galaxy S5 is equivalent to iPhone 5C. The updated spec is just not that thrilling.

  1. climacs

    Dedicated MacNNer

    Joined: 09-06-01

    Suck on that androids. A 2 and a half year old iPhone with a by-now tiny screen is still kicking butt in the market. iPhone 6 launch should be HUGE. I have a 4S and can't wait to swap it for a 6.

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