Tough time for Samsung
Operating profit for third quarter projected to plunge 47%
SEOUL: Samsung Electronics Co, the world’s largest smartphone maker, is heading for its roughest quarter in years amid rising competition from Apple Inc and China’s Xiaomi Corp.
Analysts have been cutting their profit estimates almost daily, with at least 26 of 42 tracked by Bloomberg reducing their estimates in the past four weeks. Operating profit for the third quarter is projected to plunge 47%, while sales are projected to fall 15%, according to the average analyst estimates. Both are the steepest declines since at least 2009 with Samsung to announce results today.
Samsung is fighting to retain its dominance after Apple introduced bigger-screen iPhones and Xiaomi began selling its low-cost devices in more overseas markets. Samsung moved up the release date for its Galaxy Note 4 smartphone to the end of September, meaning device sales will aid third-quarter results.
“We all know Samsung’s third-quarter earnings will be pretty ugly,” Claire Kim, a Seoulbased analyst at Daishin Securities Co, said by phone. “The earlier release of its new phones could be reflected in its third-quarter earnings, it could give them a slight boost.”
Apple’s iPhone 6 and 6 Plus have screens of 4.7 inches and 5.5 inches, respectively, compared with 4 inches for previous models, and are comparable to the size of Samsung’s devices. Apple said it sold a record number of the new models during their debut weekend last month.
Product release dates were determined based on a range of internal and external factors that affect business operations, Suwon, South Koreabased Samsung said in an e-mailed response to Bloomberg. The company introduced its Galaxy S series phones in June 2010.
Samsung rose 0.3% to 1,144,000 won as of 9:31am in Seoul yesterday. The stock has dropped about 17% this year, wiping out about US$32bil of market value.
At the annual IFA consumer electronics show in Berlin, Samsung said on Sept 3 the Galaxy Note 4 would be released in October. Apple introduced new iPhone models on Sept 9 and the phones went on sale starting Sept 19 in select markets.
The Cupertino, California-based company will start selling new iPhones in China on Oct 17 after the Ministry of Industry and Information Technology granted the smartphones a network access permit, the final step in the approval process.
The Note 4 is available through China Mobile Ltd for 5,199 yuan (US$847). In South Korea, the device is available through the nation’s three mobile carriers for 957,000 won (US$901).
“Samsung wanted to release the Note 4 in China ahead of Apple to give an earlier splash,” said Greg Roh, a Seoul-based analyst at HMC Investment Securities Co. “Although it’s the very-last minute release in September, it will definitely contribute to its third-quarter earnings.”
Samsung would start global sales of its 5.6inch Note Edge in the fourth quarter, the company has said. The Edge allows users to read messages, news and stock tickers from an angle by extending the display down the side of the phone.
Starting in the 2010 financial year, Samsung adopted International Financial Reporting Standards for its earnings. That change means comparisons to results before 2009 aren’t on a like-for-like basis.
Samsung and Apple face stiffer competition in the world’s largest market as China Mobile takes steps to eliminate US$2bil in smartphone subsidies, almost doubling the costs of some high-end devices for consumers.
That may benefit manufacturers like Xiaomi that offer cheaper devices packed with highend features.
“The most important thing for Samsung now is to protect its fast-falling market share, especially in China,” said Daishin Securities’ Kim. — Bloomberg