Samsung expects 60 percent drop in profit for Q3 2014

The smartphone giant blames higher marketing costs and lower handset sales prices for its fourth straight quarterly drop.

Months ago Samsung was warned by its financial results that the second half of the year would not be so easy to deal with and taking a cue from this speculation, Samsung made an announcement on Monday that for this third quarter of 2014, it is expecting a decline of nearly 60 percent in its operating profit. This means that Samsung’s profits have been dropping for four quarters straight. For the second quarter ended September 30, the company reported an operating profit of 4.1 trillion won ($3.8 billion), which results in a 59.7 percent drop from the year-ago quarter. The danger to profits comes from a decline in sales which for this quarter came in at around 47 trillion won, showing a 20 percent decline.

The picture still isn’t clear enough since there are no details on the divisional earnings however just the like the past two quarters, the company has released “reference materials” to address concerns about the current state of the company. Approximately two-thirds of the Samsung’s operating profit constitutes of smartphone shipments which have increased marginally in the quarter. This isn’t good news altogether since Samsung wasn’t completely able to benefit from the margins which got hurt by higher marketing costs and lower selling prices for the company’s high-end handsets.

The analysts’ predictions for this third quarter had already been warning signal for the company and they said that Samsung was likely to make an announcement for its biggest decline in five years. According to their projections, Samsung’s operating profit would tumble about 42 percent to $5.9 trillion won ($5.52 billion) while its sales were expected to drop 14 percent to $50.9 trillion won ($47.6 billion), according to Thomson Reuters.

Sanford Bernstein analyst Mark Newman stated, “Q3 earnings is expected to be weak, brought down by poor performance in smartphones, with memory remaining the only strong point.” Samsung certainly needs to pull itself through this turmoil and being one of the largest names in the smartphone industry, it can’t simply go down. The profits of the company have been hurt and highly affected in the emerging markets by low-cost handset vendors such as Xiaomi and Huawei. Not to forget the competition which Apple poses when it comes to the other market segment of pricey, high-end smartphones.

Things have begun to race in for Samsung ever since Apple announced its two latest smartphones; the iPhone 6 and the iPhone 6 Plus. And as indicated by IDC, Samsung was the only one that saw shipments fall year-over-year in the second quarter out of the five largest smartphone vendors in the world. Another shocker for the company comes from the prediction of Fitch Ratings which says that Samsung’s global smartphone market share would fall to 25 percent in 2015 from 31 percent this year.

source: cnet