Record Samsung Profits Fail to Impress Investors

Samsung Electronics has reported record quarterly profits, up 50% from last year thanks to strong smartphone sales, but the results fall short of investor expectations.

Net profit for the April to June quarter was 7.8 trillion won (£4.5 billion) on revenues of 57.46tn won (£33bn). Although still a healthy profit, Wall Street had expected to see 7.96tn won for the April to June period.

The slight miss caused Samsung Electronics' share price to fall 0.91% to 1,303,000 won; the company's share price has fallen 16.6% since the start of 2013.

For reporting profit, Samsung breaks its products down into three categories: Consumer Electronics, IT & Mobile communications, and Device Solutions.

The company's consumer electronic division, which includes its TV business, recorded 12.78tn won profit, while IT & Mobile brought in 35.54tn won - of which all but one trillion was from mobile devices. Samsung Device Solutions division achieved a profit of 17.05bn won, split almost equally between semiconductors and display panels.

Warned

The South Korean company warned that the pace of its smartphone business may fall, as the European economy continues to recover slowly and Samsung faces increased competition from its rivals.

Samsung recently broadened its popular Galaxy S4 range by adding a cheaper Mini model to compete with the iPhone 4 and 4S, which Apple continues to sell at reduced prices. HTC joined the sector earlier this month with the One Mini, a scaled down version of its flagship One smartphone.

The company also added the S4 Zoom and S4 Active to appeal to customers who want a Galaxy S4 with increased photography capabilities, and a tough waterproof design respectively.

Typically strong

Robert Yi, Samsung's head of investor relations, said: "Entering into a typically strong season for the IT industry, we expect earnings to continue to increase. However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphone and other set products."

"The strong growth streak for the smartphone market is expected to continue in the third quarter albeit at a slower pace," Samsung said.

Samsung claimed 95% of all profits generated by Android device sales globally in the first quarter of 2013, according to research by Strategy Analytics; but analysts now fear that the company had already peaked in the first quarter, and increased competition could lead to uncertainty over future growth.

"Biggest bread earner"

Kiwoom Securities analyst Lee Jae Yun told Bloomberg: "The mobile business, the company's biggest bread earner, has already peaked out in the first quarter. This is increasing uncertainty over the company's overall profit growth next year."

While Samsung expects the growth of smartphone sales in developed nations to slow, analysts believe the budget smartphone sector in developing markets will help to offset this.

Analyst Doh Hyun Woo said: "The growth momentum, as seen in the past, is unlikely to be sustained. But since global smartphone penetration currently remains at 49%, the volume shipment will continue to increase until it reaches a level of about 70%."