Samsung Forecasts Drop in Profit as Galaxy S6 Fails to Meet Expectations

South Korean tech giant Samsung Electronics Co Ltd on Tuesday guided for weaker-than-expected second-quarter earnings, as a supply shortage plagued its latest smartphone launch and tepid demand from key markets likely undercut sales.

The guidance suggests that Samsung, while on a gradual recovery path, will struggle to replicate the explosive growth it recorded at the turn of the decade as smartphone competition intensifies and demand softens in China and Europe.

Operating profit for the second quarter likely fell 4 percent from a year earlier to KRW 6.9 trillion (roughly Rs. 38,800 crores), Samsung said in a filing, its best profit in four quarters but also the seventh straight period of annual decline.

The average forecast from a Thomson Reuters I/B/E/S survey of 39 analysts was a profit of KRW 7.2 trillion.

"It doesn't matter how competitive you are if overall demand is weak," HMC Investment analyst Greg Roh said. "Third-quarter earnings will likely be similar to the second quarter."

Revenue for the quarter would fall 8.3 percent from a year earlier to KRW 48 trillion, well below the KRW 53.4 trillion average analyst forecast and the fifth consecutive quarter of annual decline. The company gave no other specifics and is expected to report its full results in late July.

Samsung shares had jumped 2.1 percent as of 0213 GMT, outperforming a 0.3 percent decline for the broader market as investors appeared to breathe a sigh of relief that the guidance was better than analysts' worst fears.

Samsung's annual profit is expected to rebound this year from a three-year low in 2014, but its shares have languished in recent months amid doubts about sales of its new Galaxy S6 smartphones.

A failure to make enough curved-screen Galaxy S6 Edge (Review | Pictures) models to meet demand likely hurt mobile-related earnings, analysts believe. While the company says it has fixed the problem, it may be too late to fully capitalise on a lull in competition for new high-end devices ahead of the launch of the latest Apple Inc iPhones, expected as early as September.

China's economic slowdown is also pinching smartphone makers' earnings. Chinese rival Xiaomi Inc last week said first-half sales fell from the previous six months.

Industry-wide shipments in China, the world's biggest smartphone market, slipped in the first quarter for the first time in six years, researcher IDC said in May.

HDC Asset Management fund manager Park Jung-hoon said Samsung probably decided not to force volume growth for mid-to-low tier smartphones, choosing to preserve margins at the expense of sales.

© Thomson Reuters 2015