Money Samsung's second-quarter profit seen flagging as smartphone innovation dries up

10:31  04 july  2018
10:31  04 july  2018 Source:   reuters.com

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SEOUL (Reuters) – Samsung Electronics Co Ltd is expected to post its smallest profit growth in more than a year in the second quarter “Market watchers don’t have high expectations for its smartphone business at the moment, when Chinese players have already caught up in technology and ideas.”

Business News›News›International›Business› Samsung ' s Q2 profit seen flagging as smartphone innovation dries up . Operating profit in the chips business is expected to grow about 50 percent to a record 12.5 trillion won in the second quarter versus a year ago, according to analysts, as servers

FILE PHOTO: A Samsung washing machine is seen in a store in Singapore© REUTERS/Thomas White/File Photo FILE PHOTO: A Samsung washing machine is seen in a store in Singapore Samsung Electronics Co Ltd (005930.KS) is expected to post its smallest profit growth in more than a year in the second quarter, as lacklustre sales of its premium Galaxy smartphones overshadow its highly profitable chip business.

Analysts expect Samsung's smartphone sales to drop in the April-June quarter, following a more than 2 percent drop in the previous quarter as consumers flock to cheaper models from Chinese rivals such as Xiaomi Corp (1810.HK).

Samsung's lead over Apple Inc (AAPL.O) in the global smartphone market is under pressure after the U.S. firm's iPhone X exceeded market expectations while a lack of technological innovation dogs Samsung offerings.

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Samsung is widely known as the exclusive supplier of organic light-emitting diode (OLED) screens for the high-end smartphone . The S 9, which went on sale in most markets in mid-March, is likely to have a considerable on-year impact on first quarter profit as it was released a full 5 weeks earlier in

Samsung shares fell after the announcement as analysts forecast similar or lower profit in the second quarter , due to slower growth in DRAM chip prices and higher marketing costs for the flagship Galaxy S 9 smartphone .

"Functions (that) Samsung's mobile phones have are not attractive enough for customers to spend more money on," said Song Myung-sup, analyst at HI Investment & Securities.

Samsung's latest Galaxy S9 flagship phone, launched in mid-March, boasts lots of software but little in the way of technological wizardry. It is on track to sell less in its launch year than its predecessor Galaxy S8 series sold in 2017 after its debut, analysts said.

This is expected to drag on profit growth when the Korean conglomerate posts second-quarter earnings on Friday.

Analysts expect an operating profit of 14.9 trillion won ($13.3 billion) for the quarter, up 5.7 percent from a year earlier but less than the record 15.6 trillion won it posted in the March quarter, according to a Thomson Reuters poll.

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To be sure, Samsung ’ s 9.5 trillion won (.3 billion) operating profit forecast, up 47 percent from a year ago, is a But the glitz and glamour has failed to arrest a slide in handset sales growth, and shipments are seen rising only 4 percent to 8 percent in the second quarter from the previous quarter.

Samsung posted KRW 53.33 trillion in consolidated revenue and KRW 9.22 trillion in operating profit for the quarter . For 2016, Samsung achieved solid results despite the Note 7 discontinuation in the second half as a The fourth quarter saw higher market demand for smartphones and tablets on

Samsung, whose shares are down 9 percent so far this year, is also expected to issue guidance for the April-June quarter on Friday, giving estimates for revenue and operating profit. It will disclose detailed results in late July.

CHINESE CHALLENGERS

Samsung relies on traditional distribution to sell phones, whereas competitors have pulled ahead by leveraging online sales to provide high-end smartphones at competitive prices, Counterpoint analyst Shobhit Srivastava said.

Some investors are skeptical whether Samsung's upcoming line-up of foldable phones with sleek OLED screens will be innovative enough to gain traction with customers. The new Galaxy Note will debut on August 9 in New York.

"Samsung has to show something that will change the paradigm," said Park Jung-hoon, a fund manager at HDC Asset Management that owns Samsung Electronics shares.

"Market watchers don't have high expectations for its smartphone business at the moment, when Chinese players have already caught up in technology and ideas."

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Samsung reported huge quarterly operating profits , up more than 70% year on year. Samsung will see "a meaningful revenue increase" thanks to the supply of display panels "to a major smartphone customer" in the next three months, Daiwa Capital Markets analyst SK Kim wrote in an investors note.

Samsung ' s operating profits really did reach 8.14 trillion won (.2) like it expected, marking the second quarter of 2016 as its strongest in According to Strategy Analytics, the company shipped 78 million smartphones this quarter. So it's confirmed that surge is just MADE UP arbitrarily.

In China, the world's biggest smartphone market, Samsung's market share was just 1.3 percent in the first quarter, according to data from research firm Strategy Analytics, compared with Huwawei's [HWT.UL], 22.5 percent.

Chinese smartphone makers - Huawei, Oppo, Vivo and Xiaomi - held the top spots in China, while Apple was the only foreign firm in the top five.

In India, Xiaomi displaced Samsung as market leader last year and continued to lead in the world's second-biggest smartphone market in the first quarter, according to a report from research firm Counterpoint.

To be sure, Samsung remains the world's largest smartphone maker, selling about 80 million gadgets a quarter and holding more than a fifth of the global market.

Its troubles in the mobile segment are overshadowing the success of its chips business, which generates about three quarters of Samsung's operating profit and about a third of its revenue.

Operating profit in the chips business is expected to grow about 50 percent to a record 12.5 trillion won in the second quarter versus a year ago, according to analysts, as servers, gaming PCs and cryptocurrency mining devices demand more firepower to process streaming data.

(Reporting by Ju-min Park and Heekyong Yang; Writing by Sayantani Ghosh; Editing by Stephen Coates)

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