Samsung forecasts 60% profit plunge in Q3 but hopes to bounce back with new mid-range smartphones

Samsung Electronics forecasted that its operating profit in the third quarter fell by as much as 60 percent year-over-year amid stagnating smartphone sales. However, the company is hopeful that sales will pick up in the fourth quarter and said it is readying new phones in the low-to-midrange market to help it recover ground.

In previewing its third-quarter earnings, Samsung said its operating profit for the third quarter likely plunged anywhere from 57.8 percent to 61.8 percent from a year earlier to between 3.9 trillion won ($3.6 billion) and 4.3 trillion won ($4.0 billion). According to Reuters, those profit figures would be the lowest in more than three years. In the year-ago period the company recorded a record operating profit of $9.53 billion.

Samsung said total sales in the quarter were about $43.9 billion, much lower than the $47 billion average of 40 analyst estimates compiled by Bloomberg.

Samsung has faced pressure at the high end of the market from Apple's (NASDAQ: AAPL) new iPhones, as well as from lower-cost phones from Chinese rivals such as Lenovo, Huawei, Xiaomi, ZTE and others. Samsung gets more than 60 percent of its profit from the sale of mobile phones, according to the Wall Street Journal.

"Smartphone shipments increased marginally amid intense competition," the company said in a statement about the third quarter. "However, the operating margin declined due to marketing expenses related to aggressive promotions and lowered ASP (Average Selling Price) driven by reduced proportional shipments of high-end models coupled with price decreases for older smartphone models."

Samsung did not say how many smartphones it sold during the third quarter. Looking ahead to the fourth quarter, Samsung said that there remains "uncertainty" in the mobile business, but that it "cautiously expects increased shipments of new smartphones."

Going forward, Samsung said it plans to "secure sustainable mid- to long-term growth despite intensified competition" by releasing new smartphones "featuring new materials and innovative designs, as well as a series of new mid- to low-end smartphones with strong competitive positioning on both hardware specifications and price."

Some analysts think the company's profit has bottomed out and that the firm will bounce back. "Considering the operating profit guidance, it looks like the company dealt with unsold inventory issues during the third quarter," Alpha Asset Management fund manager Hong Jeong-woong told Reuters. "I think Samsung's earnings are at a turning point."

"The market thinks this is the worst profit they can expect from its mobile business, it won't go any lower from here as more product lineups are expected throughout this year into next year," Daishin Securities Co. analyst Claire Kim told Bloomberg.

Meanwhile, Samsung is also investing in other areas of its business. For example, Samsung said it will invest around $14.6 billion to construct a new semiconductor factory in South Korea, in its largest investment in a single plant. Additionally, Samsung in August acquired Internet of Things platform company SmartThings to increase its presence in the connected home market.

For more:
- see this Samsung statement
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

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