By Giles Hewitt ,AFP
October 8, 2014, 12:01 am TWN
SEOUL -- Samsung Electronics on Tuesday flagged a near 60-percent on-year plunge in its third quarter operating profit, as its key smartphone sector continued to struggle in the face of increased competition.
Operating profit for the July-September period was estimated at 4.1 trillion won (US$3.8 billion), down 59.6 percent from the third quarter last year, the company said.
Sales were estimated at 47 trillion won, down 20.4 percent from 2013.
While smartphone shipments increased slightly, “operating margin declined due to increased marketing expenditures and a lowered average selling price, driven by reduced proportional shipments of high-end models coupled with price decreases for older smartphone models,” the South Korean electronics giant said in an explanatory note.
The company warned that uncertainty in the mobile sector would carry through into the fourth quarter, although it promised a new line-up of top-end smartphones featuring “new materials and innovative designs.”
In July, Samsung had reported a 20-percent drop in net profit for the second quarter, and its shares are sitting at a two-year low.
The share price actually rose by as much as 3 percent in early trading after the profit warning, and finally closed the day up 0.96 percent at 1.162 million won.
Lowered Expectations
“Expectations have been lowered to a point where a four trillion won operating profit would relieve investors,” explained Lee Seung-woo, an analyst with IBK Securities in Seoul.
The mobile market, which has been the key driver of Samsung profits in recent years, has become increasingly saturated, while competition has intensified from cheaper Chinese handset makers such as Huawei and Lenovo.
The world's largest smartphone maker has a diverse product line ranging from memory chips to home appliances, but more than half of its profits are generated by mobile devices.
The explanatory note said shipments and profits in the company's display panel business had also fallen in the third quarter due to weaker demand in the mobile sector.
It did not provide a breakdown of profit estimates by businesses, but noted the “improved” performance of its memory chip unit in the third quarter.
Samsung said Monday that it planned to invest 15.6 trillion won to build a high-tech chip-making facility in the northwestern city of Pyongtaek.
Demand for memory chips is expected to remain robust, and the new facility — scheduled to begin operations in 2017 — is seen as a strategic effort to offset further profit falls in the smartphone segment.
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