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 The downbeat guidance, as well as Samsung's decision to keep its
interim dividend unchanged from last year, put the shares of South
Korea's biggest company by market value on track for their worst
daily percentage decline in nearly eight months.
Samsung expects July-September handset shipments to pick up by 10
percent from the previous quarter and said it planned to release a
new premium smartphone employing a new design and material,
underscoring efforts by the world's largest smartphone maker to
regroup.
With its flagship Galaxy S5 smartphone outsold by Apple Inc's iPhone
5S in May and its cheaper devices feeling the squeeze from Chinese
rivals like Xiaomi, Samsung also vowed to revamp its mid-to-low-tier
product lineup with more aggressive pricing and a focus on a smaller
set of products.
Those plans were mostly in line with market expectations and Samsung
remained downbeat about its third-quarter prospects, with its mobile
division expecting a decline in average sales price in the current
quarter from the April-June period.
"Considering intensifying competition of price and specifications as
well as the release of new competing models, it is difficult to
expect earnings to improve from the second quarter," Senior Vice
President Kim Hyun-joon said about the mobile business during a
conference call with analysts.
PROFIT SLIDE CONTINUES
For April-June, Samsung said operating profit fell 24.6 percent
annually to 7.2 trillion won ($7.03 billion), matching its guidance.
It was the third straight quarter of profit decline and its weakest
result since the second quarter of 2012.
Profit for the mobile division fell to 4.42 trillion won from 6.28
trillion won a year ago, also the lowest in two years.
Samsung warned that business conditions for the second half would
remain challenging, deepening investor concerns about its prospects.
Samsung shares were down 3.8 percent as of 0432 GMT, underperforming
the wider market's 0.5 percent decline.
"There needed to be a positive guidance for third-quarter results
but it looks like the company is saying the outlook isn't too bright
aside from its semiconductor business," said IBK Asset Management
fund manager Kim Hyun-su, adding that he would hold off on buying
more Samsung shares until there was a clear turnaround.
Samsung's mobile division executives returned a quarter of their
first-half bonuses and have downgraded to economy seats for shorter
flights, evidence the South Korean tech giant is tightening its belt
as it tries to bounce back.
But analysts say the pressure on the business to turn momentum
around will persist and could lead to a reshuffle if the current
management could not deliver.
Researcher IDC said on Wednesday that Samsung's second-quarter
global smartphone market share slipped to 25.2 percent from 32.3
percent a year ago, underscoring its troubles.
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"Nothing on the smartphone end has particularly changed, and there
likely won't be any change in the story aside from effects of cost
reduction," said IM Investment analyst Lee Min-hee.
Some analysts say Samsung should introduce curved displays or metal
casings rather than much-criticised plastic for its premium
products. Some have suggested a whole new brand to separate its
high-end products from cheaper devices.
Samsung finds itself facing the first annual profit decline in three
years just as Apple prepares to launch a larger iPhone that would
challenge the South Korean giant on its home turf of out-sized,
high-end devices.
The weak second-quarter results will put the spotlight on the next
Galaxy Note handset, expected to be launched in September. The
company once again hinted at a significant change in design for the
device but offered no specifics on Thursday.
"They'll have to make sure that the Note 4 isn't a flop,"
Counterpoint analyst Tom Kang said before Samsung's earnings
disclosure.
Samsung's chips business reported a profit of 1.86 trillion won, in
line with solid results for rival SK Hynix Inc, as tight supply for
DRAM memory chips for personal computers and servers boosted the
bottom line.
Samsung's guidance on its memory business was bullish, tipping its
2014 shipment growth for both DRAM and NAND memory chips to outpace
the broader market.
Samsung said it planned 24 trillion won in capital expenditure this
year, in line with 2013, with 14.4 trillion won of that for its
chips business.
($1 = 1023.9000 Korean Won)
(Additional reporting by Kahyun Yang; Editing by Stephen Coates)
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