Samsung forecasts bleak Q3 as smartphone sales suffer

Samsung's mid to low-end smartphones lost out in the quarter to cheaper devices from China

Samsung Galaxy S5

Samsung Electronics expects its third-quarter operating profit to fall by almost 60 percent on sluggish sales of mobile devices as Chinese companies eat into its market share with cheaper smartphones.

Revenue is expected to drop 20 percent to about 47 trillion won ($44.2 billion) in the July-to-September period, from 59.08 trillion won a year ago, the South Korean company said Tuesday in an earnings guidance. Operating profit was approximately 4.1 trillion won, compared with 10.16 trillion won in the year earlier period.

The weak demand for wireless devices also hurt Samsung's logic chip business and OLED panel sales, it said. Intense global competition led the company to shrink its reliance on high-end smartphones and to cut the price of its older products.

In the fourth quarter, Samsung will position its smartphone-tablet hybrid, Galaxy Note 4, to compete with Apple's new iPhone 6, but its profit from smartphone sales will continue to suffer as competition with Apple and Chinese rivals will only get more intense, said Seo Won, senior analyst at Korea Investment & Securities, in a research note.

The company sold only 11 million of its latest flagship Galaxy S5 smartphones in the third quarter, down from 18 million in the second quarter, according to Seo.

The inventory of an estimated 40 million Galaxy smartphones piled up in the sales channels is worrisome, as it reflects a loss of consumer appeal to other quality Android devices in the market, said Lee Seung-woo, analyst at IBK Investment and Securities, in a research note. Samsung needs a new strategy for its mid to low-end smartphones in terms of features and price, he added.

The world's largest mobile device maker said it expected "uncertainty" in its mobile business to continue into the next quarter. It plans to release new series of mid to low-end smartphones using "new materials," while trying to expand its component suppliers including for OLED screens.

The company will report its actual earnings later this month.

Copyright © 2014 IDG Communications, Inc.

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