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Samsung's Q2 earnings forecast gloomy on weak sales, strong won

2014/06/23 11:41

By Kang Yoon-seung

SEOUL, June 23 (Yonhap) -- Samsung Electronics Co., the world's No. 1 maker of smartphones, is likely to show disappointing earnings for the second quarter of 2014, analysts said Monday, citing weaker shipments of mobile devices and the strong South Korean won against the greenback.

Amid the gloomy outlook, Samsung Securities Co. estimated the tech giant will post an operating profit of 7.9 trillion won (US$7.74 billion) in the April-June period, falling sharply from the previous market consensus of around 8.8 trillion won.

Other brokerage houses have also made downward adjustments, with KDB Daewoo Securities Co. and Woori Investment & Securities Co. slashing their earnings outlooks to 8 trillion won and 8.2 trillion won, respectively. Eugene Investment & Securities Co. gave an 8.07-trillion-won outlook.

Analysts said the downgrades came as the IT and mobile business division, which lies at the heart of Samsung's earnings, is anticipated to post sluggish earnings amid heightened competition with global rivals.

"While Chinese players poured low-end devices into the market, Samsung had difficulties differentiating itself from others," said Hwang Min-sung, an analyst at Samsung Securities Co.

"Samsung's combined sales of smartphones are expected to reach 79 million units, down 10 percent from the previous quarter," said Cho Woo-hyung, an analyst at KDB Daewoo Securities Co. Samsung sold around 89 million units of smartphones in the first quarter.

Analysts said while the launch of the long-term evolution services in China, where South Korean players hold a competitive edge compared to their Chinese rivals, may seem like an opportunity for them, it still isn't strong enough to recoup losses in the low-end sector.

The strong Korean won is also weighing on the firm's earnings outlook, analysts said. A steady current account surplus and improving economic outlook in Asia's fourth-largest economy have led to a firming currency against the U.S. dollar.

The won closed at 1,020.60 won on Friday against the greenback compared to the 1,064.70 won at end-March. A stronger won inflicts foreign exchange losses and makes South Korean goods more expensive than those of rivals.

Analysts said Samsung's mobile division would remain stagnant for the time being.

"Despite the weak sales of low-end smartphones in the second quarter, the robust sales of the Galaxy S5 limited the downfall," said Lee Min-hee, an analyst at I'M Investment & Securities Co.

"However, the sales of the high-end model will lose steam in the third quarter. With Apple Inc. ready to release its next iPhone later this year, Samsung will face more intensified competition down the road," Lee said.

"Of course, it is unlikely that Samsung will just look on with folded arms on the challenges," Lee said, adding that there are also rumors that the tech giant will release its next model of the Galaxy Note line-up earlier than expected.

Shares of Samsung Electronics, which climbed to 1,470,000 won on June 3 on investor hopes of a group-wide restructuring after the hospitalization of its chairman Lee Kun-hee, continued to fall on the gloomy second-quarter outlook to close at 1,301,000 won on Friday.