Samsung profits to fall again as smartphone sales slow

SEOUL — Samsung Electronics, the world’s largest smartphone and mobile phone maker, said it is on track to post its second consecutive quarter of profit decline, as margins in the key smartphone business come under growing pressure from cheaper Chinese rivals.

The company is counting on the fifth version of its flagship Galaxy S smartphone, which goes on sale globally from Friday, to right the ship and prove the firm’s staying power as a high-end innovator. However, the Galaxy S5 has already got off to a weak start at home, with its South Korean debut marred by a temporary ban on mobile carriers selling handsets and criticism that it lacks eye-catching new features.

Underscoring the challenges, Samsung priced the S5 about 10 per cent cheaper than the S4 even though main rival Apple is not widely expected to update its line-up until September. It also scaled back on marketing glitz to keep margins stable.

Samsung estimated yesterday its January-March operating profit fell by 4.3 per cent to 8.4 trillion won (S$9.96 billion), marking the second quarter of year-on-year decline, after a 6 per cent drop in the fourth quarter. The profit estimate — which it will consolidate formally later in the month — was in line with market expectations. Sales were flat at 53 trillion won, up 0.24 per cent. The mobile segment is the largest contributor to Samsung’s revenues and profits. Samsung made more than 30 per cent of all smartphones sold in the world last year, nearly twice the share of its rival Apple.

But Samsung faces the daunting challenge of keeping momentum in the increasingly saturated market. Major handset makers have recently stepped up efforts to develop wearable devices, seen as a new source for growth, but few have managed to garner much consumer excitement or sales.

Samsung’s first Internet-enabled smartwatch, introduced last September, was greeted coldly by consumers who viewed it unfashionable. Its second edition, the Gear 2, was launched in February, using its own Tizen software rather than Google’s Android software that powers its smartphones.

Analysts said the company’s efforts to rein in component costs and make products that appeal to a wider audience will be crucial as Samsung braces for what could be its first annual profit decline in three years.

Samsung shares are down 12 per cent from the record high in January last year, weighed by worries over high-end market saturation and competition from low-end phones made by the likes of Huawei Technologies. Such headwinds may increase pressure on the company to use its cash holdings to boost languishing share prices.

The firm said in January that it would raise dividend payouts after increasing them by 79 per cent to a record 2.1 trillion won last year. A stockpile of 54.5 trillion won in cash and equivalents held at end-2013 suggests room for manoeuvre. AGENCIES