Samsung forecasts record profit but shares drop

Friday 05 July 2013 11.54
Samsung predicts that latest quarterly profit will hit €8.3 billion
Samsung predicts that latest quarterly profit will hit €8.3 billion

Samsung Electronics today reported record quarterly profit, but its shares tumbled on doubts its mainstay smartphone business can maintain rapid growth.

Samsung Electronics estimated that its April-June operating profit came in at a record high of 9.5 trillion won ($8.3 billion). That is a 47% jump from a year earlier and 8% growth from the previous quarter.

But it fell short of forecasts who held higher expectation for the world's largest smartphone maker.

Analysts surveyed by FactSet, a financial data provider, forecast operating income of 10.2 trillion won on average.

Samsung shares dropped nearly 4% in Seoul in earlier trade today.

The company said that sales grew 20% to 57 trillion won ($50 billion) in the latest three month period. Sales of the latest Samsung's flagship smartphone, the Galaxy S4, hit 10 million units in May, less than a month since its debut.

Sales of the S4 hit the 10 million mark about 20 days faster than the previous model.

Analysts say high marketing costs probably weighed on Samsung's mobile business despite the robust sales in the first month.

The popularity of Galaxy smartphones has fueled Samsung's year-long string of record quarterly earnings. But worries have emerged that Samsung's profit growth will slow as developed countries, which are the biggest buyers of high-end phones, near a smartphone saturation point.

It has become harder to impress buyers with new features in upgraded models as most smartphones offer similar functions. Fewer ''wow factors'' in new smartphones mean people will not upgrade as quickly as they did when the devices were still a novelty, forcing device makers such as Samsung to spend more on splashy advertising and marketing.

South Korean telephone companies reduced subsidies for new phones this year, which contributed to weaker Galaxy S4 sales in Samsung's home market and higher marketing spending for the handset maker, Korean analysts said.

Another concern is that Samsung is increasingly relying on its mobile business for growth. Samsung's division that makes and sells mobile phones, tablet computers and cameras contributed 75% of its operating income in the first quarter of this year. Analysts said 60% of Samsung's second-quarter sales likely came from the mobile business.

The South Korean company will announce net income and details of quarterly financial results later this month.