Samsung Electronics profits drop amid stiff competition

<p>Samsung said that it expects third quarter profits to have fallen by 60 per cent.</p>

Stiff competition took a heavy toll on Samsung’s profits, the company revealed today (October 7th). It said that it expects third quarter profits to have fallen by 60 per cent to around 4.1 trillion won (£2.5 billion), because of slowing Galaxy smartphone sales.

That is below analysts' expectations for earnings of 5.2 trillion, and would be the lowest quarterly profit for more than three years. Stiff competition from Chinese vendors and the expected launch of the iPhone 6 are the main factor contributing to the fall in profit.

"Smartphone shipments increased marginally amid intense competition," Samsung said in a statement. "However, the operating margin declined due to increased marketing expenditure and lowered average selling price."

Investors have sold off Samsung shares on concerns about its outlook – its stock is down about 15 per cent since the beginning of the year.

Analysts quoted by the Financial Times say Samsung can yet avoid following the downward path trod by the likes of Nokia, with an overhauled suite of smartphones, including better-designed premium phones and low-cost devices that can match Chinese peers on price and specifications.

To this end, the company said it is "preparing new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid-to-low end smartphones".

However, Samsung's lead in memory chips and tight supply is expected to cushion the blow from weak mobile phones sales this year, the Wall Street Journal reports. Analysts say chip profits could exceed those from mobile phones later this year.

Today, the company announced plans to build a $14.7 billion (€9.1 billion) plant over the next three years, to address future chip demand for various electronic devices ranging from smartphones, to tablet computers and robots.

Samsung shares rose about 1.6 per cent in Seoul despite the weak profit outlook.

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