Samsung profit sags amid Chinese competition

Samsung Electronics’ second-quarter profit fell nearly 20 percent as cheaper phones from Chinese makers sapped its sales and the market is waiting for Apple’s next iPhone.

The Suwon, South Korea-based company said Thursday it posted a net profit of 6.25 trillion Korean won (about US$6.1 billion) for the quarter, down from close to 8 trillion won a year before.

Revenue was over 52 trillion won, almost 9 percent down from the same quarter last year. Earlier this month, Samsung issued a revenue guidance in the range of 51 to 53 trillion won.

Samsung attributed its poor sales of mid- to low-end handsets to intensified price competition from Chinese manufacturers and sluggish demand in Europe. It also blamed its performance on weaker global demand for tablets.

Operating profit in the mobile business fell about 30 percent from a year earlier to 4.42 trillion won, while revenue dropped 20 percent to 28.5 trillion won in the quarter.

In the second half of 2014, market demand will grow due to strong seasonality but price competition will also intensify, said Hyunjoon Kim, senior vice president in Samsung’s mobile communications division, during an earnings conference.

To compete against cheaper Chinese smartphones, Samsung will “respond actively” in terms of price and by focusing on a small number of product lines to improve profitability in the mid- to low-end segment. The company is preparing two new large-screen flagship smartphones as well as new lineups of lower-end phones in the global market in the second half. 

Kim also said the company sees more growth potential in the wearable device market, and will aim for diverse portfolios. He did not provide any details.

Samsung also said in a statement it will increase the availability of its Galaxy Tab S and Galaxy Tab 4.

The world’s largest smartphone maker shipped 74.3 million smartphones in the second quarter, according to IDC research. Samsung’s global market share fell to 25 percent from 32 percent a year earlier while Chinese manufacturers Huawei Technologies and Lenovo expanded their presence, IDC said earlier this week.

Smartphone users are anticipating Apple’s rumored announcement of the new iPhone 6, which is said to feature a larger screen than the current 4-inch display. Apple typically launches iPhone models in mid-September in time for the holiday shopping season.

“We expect 5.5-inch screens to grow more,” Melissa Chau, a senior research manager at IDC in Singapore, said in a phone interview. “We’ve seen the trend already that a quarter of smartphones have a 5-inch screen or bigger. It’s just big enough to watch video.”

Phones packing screens measuring 5.5 inches to under 7 inches, known as phablets, are also eating away at the 7-inch tablet market, Chau added.

Samsung had planned to release the first smartphone running the Tizen OS, the Samsung Z, with a roll out in Russia. Tizen is an open source, Linux-based system that the South Korean company is backing to challenge dominant smartphone software players Google and Apple.

Tizen would have been a good move if Samsung could have done it by now, Chau said, because the company has the scale to convert its existing feature phones without directly competing against Android.

“The ship for adding another ecosystem may have already sailed,” she added.