Samsung Warns Of Profit Decline For Q2, Cites Slower Smartphone And Tablet Growth

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Samsung Tuesday warned investors of weak second-quarter results ahead, attributing the drop in part to soft sales of its smartphones and tablets.

Samsung is expecting second-quarter profits of $7.1 billion, a 24 percent decline from the year-ago quarter’s $8.5 billion and the third straight quarterly decline reported by the South Korea-based company. Samsung is slated to report official second-quarter earnings later this month.

Related: Three Reasons Why Samsung's High Phone Sales Could Be Set For A Big Fall

Samsung cited several reasons for the quarter falling short of analysts’ projections, including “a slowdown in the overall smartphone market growth” and “increased competition in the Chinese and some European markets [leading to] higher inventories for the medium- and low-end smartphones.”

The “increased competition” Samsung referred to is the growth of Chinese midlevel and entry-level smartphone vendors Lenovo and Huawei, which have continued to make gains in the overseas smartphone space. Solution providers say both these companies have made great strides in the past year and Lenovo’s impending acquisition of Motorola could shake things up even further.

“This is the beginning of lower margins for Samsung as it responds to pressure in the Chinese and American markets,” said Raul De Arriz, national government sales manager for Small Dog Electronics, a solution provider based in Waitsfield, Vt. “It is not a blip in the market. Now it is competing with Chinese companies such as Lenovo and other companies from China. What Samsung is about to find out is that the Chinese will be more price- competitive than they are, and at some point the Chinese companies will catch up with them in that market.”

Samsung also said that phablet sales had encroached on its tablet sales. “Higher shipments of 5- to 6-inch large screen smartphones replaced demands for 7- to 8-inch tablets.” Samsung, which does not disclose sales numbers, described its tablet sales for the quarter as “sluggish.”

In addition, Samsung said it had focused more on promotional marketing in the second quarter to reduce inventories of its new smartphones.

Solution providers were surprised in late April when Verizon held a “buy one, get one” promotion for the Samsung Galaxy S5 when it hadn’t been on the market for even a month.

“It was clear to me when we saw the Verizon promotion that they are hurting. Apple would never do that,” said De Arriz. “If Apple were to come out with competitively sized screens, there would be little motivation to get a Samsung phone. In the American market, Samsung will have to compete through price, and that is going to squeeze profits.”

Samsung also provided positive guidance for the third quarter, saying it “expects stronger smartphone sales and this will have a positive impact on the company’s display panel business.” 


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