Samsung expects slower smartphones market growth and competition to hit profits

Samsung Electronics is expecting a drop in its operating profit for the third consecutive quarter, citing an overall slowdown in smartphone market growth and increased competition in China and some European markets.

The company was also hit in the second quarter by the appreciation of the Korean won against the U.S. dollar, the euro and most emerging markets currencies, it said Tuesday in an earnings guidance.

The South Korean smartphones and tablets maker expects its operating profit to fall to between 7.0 and 7.4 trillion won (US$7.3 billion) from 9.53 trillion won in the second quarter last year.

The company’s sales are forecast to be in the range of 51 to 53 trillion won, down from 57.46 trillion won in the same quarter last year.

Samsung said tablet sales were sluggish because they have a longer replacement cycle than that of smartphones. Higher shipments of 5-to-6 inch large screen smartphones replaced demand for 7-to-8 inch tablets, it added.

Sluggish sales of smartphones also affected the company’s semiconductor and display business.

The company saw increased inventory in medium and low-end smartphones on account of competition in China and Europe. Inventory also rose because of a weaker demand for 3G products ahead of an expected growth of demand for 4G LTE products in the Chinese market.

The company said it expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup, which is also expected to give a boost to its display panel business.

In the memory business, after stable market conditions in the first half, seasonal increase in demand in the third quarter is expected to drive stronger earnings growth, the company said.

Strategy Analytics said in April that Samsung continues to face tough competition from Apple at the higher-end of the smartphone market and from Chinese brands like Huawei at the lower-end. Samsung shipped 89 million smartphones worldwide for a 31 percent marketshare in the first quarter, dipping slightly from 32 percent a year earlier. This was Samsung’s first annual market share loss in the smartphone category since the fourth quarter of 2009, the research firm said.

Samsung also expects to be a key player in the wearables and the Internet of Things market, with plans to offer “the most innovative” wearable devices, smart home appliances, and IOT devices, it said. The company already has some products in these categories including the Galaxy Gear smartwatch.