Samsung Electronics’ Q2 earnings forecasts dive

Samsung Electronics’ earnings forecast for the second quarter have continued to plunge, dragging the stock market down despite robust sales of the Galaxy S5.

Ahead of the second-quarter earnings postings, attention has turned to Samsung Electronics’ performance and how much it will manage to recover from its first-quarter decline in profitability because of sluggish smartphone sales.

But Samsung’s smartphone profitability is not showing signs of recovery, market analysts say, with local securities firms further lowering their earnings forecasts.

“The attention is on sales of the Galaxy S5, which are expected to meet the market expectations of 18.5 million units shipped, but its overall shipment of phones is expected to fall 11 percent [year-on-year] to 78 million smartphones,” said Lee Seung-woo, head of IBK Securities’ research center.

“It lost some of its market share to Chinese manufacturers, as the replacement of its low-end products was poorly managed.”

Market expectations for Samsung’s operating profit for the April-June period dropped 14 percent from estimates made earlier this year. Estimates have fallen 4.5 percent so far this month.

Observers predict that when the earnings season begins, Samsung’s actual operating profit could decline an additional 10 percent.

As Samsung Electronics’ earnings forecasts nose-dived to about 8 trillion won ($7.85 billion) on average, some analysts suggested that the company’s quarterly sales could also decline, which would mark the first time in nine years since the second quarter of 2005.

IBK Securities yesterday lowered its second-quarter sales forecast for Samsung Electronics by 8 percent from a year earlier to 53.1 trillion won and dropped its operating profit forecast 16 percent year-on-year to be lower than current market expectations.

It also dropped Samsung’s sales forecast for the year by 4 percent from last year to 218 trillion won and its operating profit forecast for the year down 11 percent from a year earlier to 32.8 trillion won.

“Considering that a company’s weakness comes from low- and medium-specification products, Samsung can’t be revived just with high sales of the Galaxy S5 in the second quarter,” said Lee.

“The poor earnings are just around the corner, and there are still uncertainties in Samsung’s buyback of shares and policies to enhance its shareholder return.”

IBK Securities also projected that profits from active matrix organic LED (Amoled) will be lower than expected based on the decline in smartphone sales.

However, due to strong sales of ultra-HD TVs and home appliances, Samsung’s consumer electronics earnings were forecast to be higher than market expectations, IBK Securities reported.

Samsung’s memory chip business, which posted an operating profit of 1.95 trillion won in the first quarter, is expected to stay near the 2 trillion won level in the second quarter, as DRAM memory chips are selling well. But system LSI (large scale IC) sales are predicted to stay sluggish, according to securities firms.

Samsung Electronics posted 8.94 trillion won in operating profit in the first quarter. Securities companies have initially predicted that its operating profit for the second quarter would be at least in the 8 trillion won range.

Market expectations for yearly profit dropped between 33 trillion won and 35 trillion won, well below the 36.7 trillion won in yearly profit the company posted last year.

Along with Samsung, forecasts of second-quarter operating profits at 270 major listed companies on the Kospi also declined by an average of more than 4 percent.

According to Daishin Securities yesterday, forecasts for the second quarter dropped across the board by an average of 39.89 percent in the semiconductor sector, 23.98 percent in the energy sector, 7.92 percent in securities, 5.35 percent in clothing and durable consumer goods, and 4.1 percent in consumer staples area.

BY KIM JUNG-YOON [kjy@joongang.co.kr]