Samsung Electronics has predicted that its second quarter operating profit is likely to fall again, this will be the third-straight quarter of profit decline. The BBC reported that the leading smartphone maker by shipments estimated an operating profit of 7.2 trillion won (£4.2bn; $7.1bn) for the quarter, around a 25 per cent drop from the 9.5 trillion won profits a year ago.
Strong competition in the fast selling lower-midrange smartphone market
Samsung described, in an unprecedented one-page explanation, that it believes the poor numbers were related to weaker-than-expected demand for its products in China and Europe. The major cause of the two year company low is said to be increased competition. The slow sales of smartphones was also said to have a knock-on effect on Samsung's semiconductor and display business.
Market growth has shown signs of shifting towards low-end phones in emerging markets, where companies are concentrating on high-volume and low-margin handsets. Samsung has been highly dependent on its mobile division and is likely to continue to lose market share to Chinese brands such as Xiaomi, Huawei and ZTE in the coming months, say market watchers.
Unfavourable exchange rate shifts
A strong South Korean currency was also highlighted as a problem, with Samsung relying heavily on exports. With the Korean won rising more than 11 per cent against the US dollar and nearly 7 per cent against the Euro between July 2013 and the end of June 2014, this unfavourable exchange rate shift took a large bite from Samsung's foreign earnings.
However, Samsung has said that it "cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup." The company also said that it expects a seasonal increase in demand for its memory business in the third quarter to drive stronger earnings growth. With Apple's iPhone 6 range expected to launch and other competitors making progress, Samsung could find it difficult to retain momentum of the sale of its higher-end models.
