Samsung Electronics Posts 8 Percent Drop in Q2 Net Profit

South Korean giant Samsung Electronics posted an 8.0 percent fall in second quarter net profit Thursday and promised "flexible" pricing of its new flagship smartphone after less than stellar sales contributed to a slump in its mobile unit's earnings.

The world's largest smartphone maker said net profit for the April-June period stood at KRW 5.75 trillion (roughly Rs. 31,349 crores), down from KRW 6.25 trillion a year ago and slightly below analyst estimates.

The market reacted negatively, with Samsung shares down 2.5 percent in morning trade.

The conglomerate has now seen its net profit decline for five straight quarters year-on-year, mainly due to heightened competition in an increasingly saturated smartphone market that it had dominated for years.

Operating profit also shrank 4.03 percent from a year ago to KRW 6.9 trillion, while sales dropped 7.3 percent to KRW 48.5 trillion.

Samsung has faced a double challenge from US arch-rival Apple in the high-end smartphone market and rising Chinese firms like Xiaomi in the mid- and low-end market.

Hopes of a turnaround had largely been pinned on the sixth edition of its flagship smartphone launched in April.

The Galaxy S6 (Review | Pictures) and Galaxy S6 edge (Review | Pictures) with a wraparound screen received rave reviews, but company predictions of record sales fell short of expectations, partly due to production and supply constraints.

Operating profit in the mobile division was down 38 percent year-on-year in the second quarter at KRW 2.76 trillion.

'Mounting challenges'
The second half of 2015 would continue to pose "mounting challenges", the company said in its regulatory filing, with smartphone demand predicted to increase but at a lower rate.

"We will strive to maintain solid sales of high-end smartphones by flexibly adjusting S6 and Edge prices depending on marketing circumstances, while also launching new large-display models," Park Jin-Young, vice head of communications at Samsung's mobile division said during a conference call.

The company announced a mid-year dividend of KRW 1,000 a share compared with KRW 500 a year earlier.

In an effort to see off smaller rivals nipping at its heels in emerging markets, Samsung slimmed down its line of low- and mid-range smartphones last year, and ramped up production of those that remained in a higher-volume, lower-price strategy.

At the same time, booming memory chip sales have managed to mitigate some of the slump elsewhere, thanks to tight supply and strong pricing.

Samsung said operating profit for its semi-conductor unit surged 80 percent in the second quarter to KRW 3.4 trillion.

The company's recent slump has stood in stark contrast to the performance of Apple, which has seen profits gain sharply on strong sales of its latest iPhone series.

The US tech giant reported a 38 percent profit jump for the second quarter last week to $10.7 billion.

Apple sold 47.5 million iPhones in the quarter, with sales up 85 percent in Greater China where the company's overall revenue more than doubled to $13 billion (roughly Rs. 83,171 crores).

Samsung's total handset sales for the same period stood at 89 million, down from 95 million a year ago, the company said. Smartphones accounted for around 80 percent of the units shipped.

Merger plans?
Thursday's conference call made no specific mention of further merger plans, as Samsung's founding Lee family seeks to boost control over the conglomerate ahead of a generational power transfer.

This month, the company scraped through a shareholder vote on the proposed merger of two affiliates, after a US hedge fund led an unprecedented investor revolt against the deal.

Although the anti-merger camp lost the final vote, its muscular campaign marked a watershed moment for shareholder activism in South Korea, where family-run conglomerates, or "chaebol", like Samsung dominate the economy and are used to running their businesses with minimum investor interference.

Despite slowing sales, Samsung remained the top global smartphone vendor in the second quarter.

A quarterly survey by research firm IDC showed the global market for smartphones grew 11.6 percent from a year ago to 337.2 million units, the second highest quarterly total on record.

Samsung led the market with a 21.7 percent market share, even though sales dipped from a year earlier and its market share was below the 24.8 percent in the same period a year ago.