Samsung cited a strong Korean won, a decline in smartphone and tablet shipments and increased marketing expenses to explain a fall in sales and operating profit in its guidance for Q2 2014.
The company estimated that operating profit for April-June fell by 24.5 per cent to KRW7.2 trillion ($7.12 billion) compared to the same period in 2013. And the number one handset vendor forecast sales of KRW52 billion, representing a 9.5 per cent drop from Q2 2013.
Q2 disappointment was not unexpected given a recent comment from CFO Lee Sang Hoon that Q2 will be “not that good”.
However, the company said the outlook for the current quarter (Q3, 2014) is more optimistic.
As well as a strong Korean currency, the company said the weak Q2 guidance was caused by lower than expected device shipments thanks to competition in Europe and China, as well as increased marketing costs as the company worked to reduce inventory buildup ahead of the Q3 peak season and new model launches.
In turn, the weak demand for devices had a knock-on effect with Samsung’s Display and System LSI businesses.
As well as fierce competition, the company cited slower growth in demand from consumers to explain lower shipments.
In China, inventory levels increased in Q2 due to weak seasonal demand, a fall in 3G demand as consumers geared up for 4G in the second half, as well as greater competition from local players.
The company maintained a high level of market share (around 40 per cent) in Europe but as in China there was a surge in channel inventory due to weak demand.
For tablets, shipments declined more than expected because of weak overall market demand. Unlike smartphones, lack of operator subsidies led to low replacement demand for tablets.
The demand for five-to-six inch smartphones also cannibalised the demand for seven-to-eight inch tablets, the company noted.
Samsung sounded slightly more optimistic in its forecast for Q3. It expects additional appreciation of the won to be “limited” compared to the second quarter.
Also, the company expects marginal marketing expenses related to inventory reduction and “cautiously expects a more positive outlook in the third quarter led by increased shipments of the coming release of its new smartphone lineup”.
Samsung is also looking forward to increased display panel shipments, with higher shipments of devices to have a positive impact on the earnings growth.