Samsung 3Q profit lowest since 2011, but market sees bottom in sight

October 7, 2014, 9:45 AM UTC
Samsung Electronics Co. Launches The Galaxy Note 4 Smartphone, Gear S Smartwatch And Gear Virtual-Reality Headset
An employee demonstrates using a Samsung Electronics Co. Galaxy Note 4 smartphone.
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Samsung Electronics Co (SSNLF) said Tuesday the third quarter will be its weakest in three years, after it cut smartphone prices aggressively to defend its market share against “intense” competition from Apple Inc. (AAPL) and cheaper Chinese producers.

In a preliminary statement, the company said its sales between July and September were probably between 46 and 48 trillion won ($43.1-$45.0 billion), down 20% from a year earlier, while operating profit was between 3.9 trillion and 4.3 trillion won, down some 60% and the lowest since the second quarter of 2011.

The figures reflected Samsung’s well-flagged problems in the smartphone business, where Apple launched its new iPhone 6 to generally better reviews than its own new flagship product, the Galaxy S5.

The company said it managed to increase shipments “marginally” but said operating margins fell “due to marketing expenses related to aggressive promotions and lowered average selling prices.” Margins were also hit by the fact that lower-segment phones made up a bigger part of the product mix.

Samsung said the uncertainty over the smartphone business would remain in the fourth quarter, although it “cautiously expects increased shipments of new smartphones” as well as the usual holiday season surge in its consumer electronics business.

The stock market was, paradoxically, comforted by the news. Although the figures were below consensus forecasts, there was relief that they weren’t any worse, and cautious optimism that the worst may be behind it. The company’s shares finished in Seoul up 1.0% (although they’re still down 20% since June).

Samsung said it was preparing a new series of mid- to low-end smartphones “with strong competitive positioning on both hardware specifications and price” to deal with competition from Chinese companies such as Xiaomi, which knocked it off top spot in the mainland Chinese market in the second quarter, according to research firm Canalys.

Sentiment towards the company has also been helped by the announcement Monday of a huge new investment in a new semiconductor plant, as its position in the chip market looks a lot healthier than in its other businesses.


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