The operating profits of Samsung Electronics are expected to drop below 6 trillion won (US$5.9 billion) during the third quarter of this year. As this is the third quarter of serious underperformance for Samsung Electronics following the earnings shock during the second quarter, worries over the Korean economy are getting bigger.
As of August 27, securities companies at Yeouido are adjusting the performances of Samsung Electronics for the third quarter downwards, one after the other. Some even predict that operating profits for the third quarter will drop below 6 trillion won (US$5.9 billion). The main reason for these negative forecasts is sluggish activities in the smartphone businesses.
Park Young-joo, a researcher at Hyundai Securities, published a report in which the sales revenues and operating profits of Samsung Electronics during the third quarter are 50.5 trillion won (US$49.8 billion) and 5.9 trillion won (US$5.8 billion), respectively. This is even 1.6 trillion won (US$1.57 billion) lower than the market consensus of 7.5 trillion won (US$7.3 billion), and is showing a 3.5 percent decrease for sales revenues and 17.7 percent decrease for operating profits compared to the second quarter.
Researcher Park projected that although shipments of smartphones are expected to increase, in the case of the IT and Mobile (IM) sector, operating profits would still decrease from 4.4 trillion won (US$4.3 billion) in the previous quarter to 3.9 trillion won (US$3.8 billion), due to a decrease in the average sales price (ASP) and increase in manufacturing costs and marketing expenses. For the consumer electronics (CE) sector as well, poor performance is expected due to the seasonally low demand for home appliances and stagnant sales of TV affected by the volatile geopolitical atmosphere in the Middle East.
One by one, other securities firms are lowering their expectations of Samsung Electronics’ performances as well. Only last week, the projected operating profits of Samsung Electronics were in the low 7 trillion won range, but are rapidly dropping over time.
Lee Min-hee, a researcher at I’m Investment and Securities, adjusted the expected operating profits of Samsung Electronics for the third quarter downwards to 6.48 trillion won (US$6.4 billion), saying, “Another earnings shock is waiting for Samsung Electronics because of smartphones.” By sector, the forecasted operating profits were 2.4 trillion won (US$2.3 billion) for semiconductors, 260 billion won for displays (US$256 million), 3.4 trillion won (US$3.3 billion) for IM, and 440 billion won (US$433 million) for CE. Researcher Lee explained, “All this underperformance has been easily expected. ASP decreased by 12 percent compared to the second quarter as the portion of expensive phones shrank due to a radical decrease in the sales of the Galaxy S5, and price competition became fiercer. In addition, marketing expenses were higher than expected due to intense competition.” She added, “The market share of Samsung mobile phones are rapidly dropping in the budget phone market which is growing very fast. The market share of Samsung decreased to 13 percent for the second quarter this year from 21 percent for the second quarter last year, pushed down by Chinese companies.”