updated 09:24 am EDT, Tue July 8, 2014
Samsung operating income estimated to be below analyst expectations
Samsung has issued yet another warning to analysts that its earnings for the current quarter will miss expectations. The company is now predicting a drop of 24 percent year-over-year, missing pundit predictions by nearly $1 billion. The company is blaming the poor earnings forecast on currency fluctuations and a slowdown in overall smartphone market growth in the quarter. A statement following Monday's results guidance attempts to explain away the company's operating income reduction, just as warned in late June, with increased competition in the Chinese and some European markets leading to lower sales of its medium and entry-level smartphones.
Operating profit for the quarter ending in June is expected to reach 7.2 trillion won ($7.1 billion), reports Bloomberg, a drop of 24 percent compared to the last quarter and representing the company's third successive quarterly drop. This is also far below the 8.1 trillion won ($8 billion) expected by analysts. Sales were also lower than expectations, with an estimated 52 trillion won ($51.4 billion) in the quarter compared to the anticipated 53.2 trillion won ($52.6 billion.)
"The second quarter is a seasonally weak period for smartphone demand in China," states Samsung's press release, claiming there to be "price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market." Lower demand in Europe lead to increased inventory, further affecting the company's profits. Tablet sales were slow because of a "longer replacement cycle than that of smartphones, which is usually between two to three years," with Samsung noting higher shipments of smartphones with large 5- and 6-inch screens replacing those of 7-inch and 8-inch tablets.
Weak demand for smartphones from other companies also apparently affected its component and display business. The Korean won has also been blamed for the lower financial results, with a "strong Korean currency throughout the second quarter" against the dollar and euro.
The third quarter is cautiously expected to be better than the second. Despite planning to launch its "new smartphone lineup," Samsung isn't expecting to make "any major marketing expenditure to occur in the upcoming quarter." The stronger smartphone sales will help its display business, with its memory arm expected to have increased seasonal demand. Developments in wearable devices, smart home appliances, and Internet of Things devices are also planned.
The full extent of Samsung's financial situation will be revealed when the company issues its full quarterly report later this month.