Samsung to Post Third Straight Quarterly Profit Decline as Smartphone Market Saturates

South Korean electronics giant Samsung said it expects a 25% decline in second-quarter operating profit due to the strong Korean currency, shrinking sales of smartphones and tablets, and increasing marketing expenses to reduce inventories.

The company expects an operating profit of 7.2tn won ($7.1bn, €5.2bn, £4.1bn) for the second quarter, down about 25% from last year and 15.2% from the previous quarter. The guidance was well below the mean forecast of 8.3tn won based on a Thomson Reuters survey of 38 analysts.

This is the company's third straight quarter of year-on-year profit decline.

"Korean won remained strong throughout the second quarter against US Dollar, Euro and most emerging market currencies, which put negative pressure on the Company's overall earnings," the company said in a statement.

The won has recently risen to six-year highs against the US dollar, hurting the profitability of exporters in South Korea.

"For smartphone, amid slow growth of the market, sell-in shipments fell in 2Q due to increase in midto-low end channel inventories as competition intensified among set makers in Chinese and European markets," Samsung said.

Following its rapid growth in recent years, the smartphone market is maturing, according to research firm IDC. IDC predicts that the global smartphone shipment growth will slow down to 19.3% in 2014, compared to 39.2% in 2013.

Samsung, which still remains the smartphone market leader, is facing intense competition from Chinese low-cost rivals such as Lenovo, Huawei and Xiaomi that recently improved their market shares.

Meanwhile, demand for tablets weakened further due to lack of carriers' subsidies policy and high demand of large-screen smartphones.

Samsung added that its marketing expenses for the second quarter was significantly high as it was looking to reduce channel inventories in preparation for the third-quarter peak season and new model launch.

For the third quarter, Samsung expects an improvement in business conditions. The appreciation in the won would be limited in comparison to the second quarter, while the upcoming launch of its new smartphone line-up would result in increased shipments.

Samsung chairman Lee Kun-hee has been hospitalised since May following a heart attack. His son Jay Lee is expected to be the heir apparent, even though the succession plan is yet to be revealed.