Samsung’s record Q2 profit lets down market

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Samsung’s record Q2 profit lets down market

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Samsung Electronics posted a record-high operating profit of 9.5 trillion won ($8.3 billion) in the second quarter but failed to meet analysts’ estimates of over 10 trillion won. The earnings, which reflected disappointing sales of its latest flagship Galaxy S4 smartphone, dragged down the top market cap holder in the main local stock market by 3.95 percent to close at 1.27 million won.

The company’s sales in the April-June period were 57 trillion won, up 19.75 percent from a year earlier, and the 9.5 trillion won operating profit represented a year-on-year increase of 47.06 percent, according to the earnings guidance yesterday.

The average estimate for second-quarter operating profit from analysts from 12 securities firms was 10.16 trillion won, according to securities information provider FNGuide on Wednesday. Compared with the preceding quarter, the sales advanced 7.81 percent and operating profit 8.2 percent.

Foreign securities firms, which had less rosy estimates, turned out to be more accurate. JPMorgan forecast operating profit at 9.7 trillion won and Goldman Sachs 9.6 trillion won. JPMorgan’s June 6 report, in which it trimmed the target price of Samsung shares from 2.1 million won to 1.9 million won, sparked a nearly one-month downward spiral of the stock price.

Samsung does not break down earnings for different divisions in the guidance, which normally comes three weeks prior to confirmed data. Analysts pointed to a sluggish performance of its IT & Mobile Communications (IM) division as the biggest culprit.

Samsung relies heavily on the IM division, which is responsible for smartphones. In the first quarter, sales from that division, 32.82 trillion won, accounted for 62 percent of the total. Analysts had previously predicted sales for the IM division in the second quarter at around 35 trillion won but it is highly likely they ended up below 34 trillion won, they say. Operating profit for the three-month period is also estimated to have fallen short of 7 trillion won.

“Galaxy S4’s flagging performance has dealt a blow to quarterly earnings,” said Lee Se-chul, an analyst with Meritz Securities. “It’s true the growth momentum in the IM division is slowing down.”

The Galaxy S4, which debuted worldwide on April 26, shipped 20.5 million units in the quarter ended June 30 - below the initial estimate of over 22 million.

Industry insiders cite Samsung’s hefty spending on marketing the phone as another factor behind worse-than-expected quarterly earnings. The company threw an unprecedentedly large Mobile Unpacked event in New York to unveil the S4.

BY SEO JI-EUN [spring@joongang.co.kr]
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