Samsung Electronics Q2 misses forecast as smartphone worries deepen

Monday, 8 July 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Samsung Electronics Co Ltd missed already modest expectations for its quarterly earnings guidance on Friday, deepening worries that its smartphone business may have peaked, as growth in sales of its blockbuster Galaxy phones begins to wane and new rivals emerge to eat away at its market share. The Galaxy S, powered by Google’s free Android platform, propelled the South Korean firm into the top rank of smartphone makers in 2012, overtaking Apple Inc whose iPhone had set an industry standard five years earlier. Now investors fear Samsung may also follow in the footsteps of Apple and other once-mighty players that are struggling with shrinking margins, in an industry where companies live and die by their ability to stay ahead of the innovation curve. The disappointing earnings estimate by Samsung, which has had a track record of beating even the most bullish forecasts, sent its shares down more than 3% on Friday.

They have dropped 17% since early June, hit by a series of brokerage downgrades. The share price reflects concerns about Samsung’s handset margins, with its mobile business generating 70% of the tech giant’s total profit. The fall in the share price equates to a drop in market value of 39 trillion won, or worth the combined market capitalisation of Sony Corp and LG Electronics Inc. To be sure, Samsung’s 9.5 trillion won operating profit forecast, up 47% from a year ago, is a record and it is expected to report higher earnings in the current and fourth quarters as sales of its latest Galaxy S4 phone pick up and new products hit the stores. Prices of memory chips, another industry which Samsung holds the lead, are also expected to remain strong. Samsung spent more on marketing than R&D in 2012 for the first time in at least three years, and the S4 was launched in March with a Broadway-style show in New York. Handset margins are also being squeezed, as consumers in countries like China - the world’s biggest smartphone market - opt for stripped-down cheaper devices. Competition is getting intense with Chinese manufacturers such as Huawei Technologies Co Ltd and ZTE Corp making ground in the popular mid- to low-end market. Nokia Oyj, once the handset king, unveiled two back-to-basics 3G phones this week. They allow access to popular applications such as Facebook and Twitter, and sell for just $68. Wearable gadgets will also be crucial to the company’s hopes of riding a new wave of extraordinary profit growth. Apple has applied for a trademark for “iWatch” in Japan, signaling the iPhone-maker may be moving ahead with plans for a watch-like device as the industry turn its attention to wearable computers. Samsung has also filed a trademark for “Samsung Gear” in the United States for its range of wearable devices.