Samsung's Q2 profit set to be far from stellar

A launch event in New York City for the Samsung Galaxy Note8 smartphone last year. Samsung's latest Galaxy S9, launched in mid-March, is on track to sell fewer units in its launch year than its predecessor Galaxy S8 series sold after its debut, analy
A launch event in New York City for the Samsung Galaxy Note8 smartphone last year. Samsung's latest Galaxy S9, launched in mid-March, is on track to sell fewer units in its launch year than its predecessor Galaxy S8 series sold after its debut, analysts said.PHOTO: AGENCE FRANCE-PRESSE

Lacklustre sales of Galaxy smartphones overshadow firm's highly profitable chip business

SEOUL • Samsung Electronics 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 fall in the April-June quarter, after a more than 2 per cent drop in the previous quarter as consumers opt for cheaper models from Chinese rivals like Xiaomi.

Samsung's lead over Apple in the global smartphone market is under pressure after the US firm's iPhone X exceeded market expectations, while a lack of technological innovation dogs Samsung offerings.

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 fewer units in its launch year than its predecessor Galaxy S8 series sold last year after its debut, analysts said.

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

Analysts expect an operating profit of 14.9 trillion won (S$18.2 billion) for the quarter, up 5.7 per cent 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.

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

Some investors are sceptical 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 Aug 9 in New York.

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

In China, the world's biggest smartphone market, Samsung's market share was just 1.3 per cent in the first quarter, according to data from research firm Strategy Analytics, against Huawei's 22.5 per cent.

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, a report from research firm Counterpoint shows.

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 chip business, which generates about three-quarters of Samsung's operating profit and about a third of its revenue.

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

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 05, 2018, with the headline 'Samsung's Q2 profit set to be far from stellar'. Print Edition | Subscribe