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Why Samsung's Q2 earnings will disappoint

News by Luke Jones on Thursday June 26, 2014.

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Samsung's Q2 earnings will be "not that good" according to the company's CFO Lee Sang Hoon and smartphone sales are the biggest reason for that. We would have worded things differently in Hoon's shoes because "not that good" should really be "not that bad" because Samsung will still make 8.4 trillion won ($8.2 billion) through the second quarter.

When profit is counted in the billions, it is probably best not to discuss things in a doom and gloom nature, but nevertheless Samsung's Q2 earnings performance this quarter will cause some concern in the company. Not least because this time last year the company's profits were through the roof, with a record 10.2 trillion won ($10.3 billion) recorded for the second quarter of 2013.

Of course, it is tough to follow record breaking sales and to keep breaking those records, so in isolation a drop in profit in 2014 would be logical. The problem for Samsung is the wider implications of that loss and more importantly what is causing the loss. A drop in smartphone sales has hit the company and the results are a tail off in earnings, meaning Samsung is losing market share.

"Strengthening competitiveness of local players in emerging markets are hurting sales of Samsung's lower-end smartphones," said KTB Investment & Securities analyst Jin Sung Hae. "The main reason behind the lowered earnings estimate largely stemmed from weak smartphone sales."

Samsung's hold in emerging markets has slipped as other brands now deliver quality budget handsets and the Android market particularly gets over saturated by alternatives. However, the low end only tells half the story as even at the top Samsung is feeling the pinch, with its flagship devices enduring sales lulls too.

For example, the Galaxy S5 has not enjoyed quite the same rocket like trajectory as it predecessors as consumers now have equal ability handsets from LG, Sony, HTC, and just about every mobile company in between. Of course, Apple's iPhone continues to cast a shadow over Samsung's flagships as it always has done. Yes, the Galaxy S series has found huge success despite Cupertino?s "i" device, but the fact remains the iPhone is the juggernaut of the smartphone world.

So much so that Samsung has slashed orders for the Galaxy S5 in the third quarter in anticipation of the iPhone 6, with the company knowing many people are holding off buying an S5 as they wait for the Apple product. Samsung is also said to be worried by the impact the reported iPhone phablet would have on its Galaxy Note smartphones and is looking for ways from a marketing point to avoid comparisons.

The company's response to falling profit has been to carry on as normal, and for Samsung that means releasing device after device. The Korean brand has always worked by releasing tens of handsets and seeing which ones become breakthrough successes. So with that in mind you can expect high end and low end devices to continue rolling off the production line at Samsung.

Of course, a huge dollop of perspective is also needed here, after-all, the company will still rake in over 8 billion bucks.

source: Bloomberg

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About the author

Luke Jones
Luke Jones is the Managing Editor at MobileBurn.com and is the person you need to speak to about the content on the site. Luke studied creative writing at degree level before carving out a reputation as a freelance tech writer. He settled here at MobileBurn, where he reviews devices and contributes to the news, as well as overseeing the site's content and direction.

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