Possible Earnings Shock: Samsung Electronics May Perform Far Below Expectations in Q2 | BusinessKorea

Monday, July 27, 2015

7 July 2014 - 11:58am

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There is growing concern that Samsung Electronics' operating profits may decrease to the 7 trillion won level in the second quarter.

According to sources in the financial investment industry on July 6, given a continuing downward trend after Q3 2013, Samsung is unlikely to post operating profits of 8 trillion won in Q2, well below the estimated projections, to cause market shock. In Q3 2013, the firm's gross operating profits surpassed 10 trillion won for the first time.

Some analysts and fund managers predict that Samsung's operating profits will slip below 8 trillion won for the first time in two years. Korea Investment & Securities Co. estimated the figure at 7.914 trillion won (US$7.833 billion), and Samsung Securities with 7.929 trillion won (US$7.845 billion). The Korean tech giant will announce its Q2 estimate on July 8.

Samsung's worsening performance is mainly attributable to the slowing growth of the smartphone market. The information technology & mobile communications (IM) division represented 60 to 70 percent of the company's gross operating profits in the past, but profits of the IM division were greatly reduced in Q2. Analysts in the securities industry estimate operating profits of Samsung's IM unit at high 4 trillion won to low 5 trillion won in Q2, down from the 6 trillion won level.

Google has recently been accelerating the launch of a new offensive to dominate the market with a series of M&A deals and the expansion of new businesses. In contrast, Samsung has yet to make a breakthrough, which contributes to market anxiety. It is a very difficult time for the Korean tech company, since Chairman Lee Kun-hee's poor health, an improvement in corporate governance, and business succession are all happening at the same time.

An industry source said, “Google is involved in the smart home business by acquiring Nest Labs, and the search engine giant is expanding its businesses to wearable computers and driverless cars based on its Android operating system (OS).” The source added, “Next year, the situation may be far worse for Samsung, because its own Tizen OS still has a long way to go. Moreover, it doesn't have any visible promising new businesses.”


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