Profits at Samsung will continue to disappoint

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Profits at Samsung will continue to disappoint

Smartphone leader Samsung Electronics faces a third straight quarter of profit decline that could become a fourth as cheaper models grab a bigger share of a slowing market and Apple readies the launch of its iPhone 6.

Samsung Electronics’ woes, exacerbated by a won that has risen to a six-year high against the dollar, come at an awkward time for the flagship of Korea’s largest conglomerate. The maker of the Galaxy smartphone is expected to say today that earnings likely fell 12.6 percent for the quarter ended June, according to a Thomson Reuters I/B/E/S poll.

The group’s patriarch Lee Kun-hee has been hospitalized since May following a heart attack, and the succession map for his three children - including heir-apparent Jay Y. Lee - remains unclear.

“Samsung’s heyday has gone. Its profit growth was abnormally high for the past three to four years, and now that is normalizing,” said Chang Sea-jin, a business professor at Korea Advanced Institute of Science and Technology and author of the book “Sony vs Samsung.”

Analysts say Samsung’s top-end Galaxy S5 handset, released in late March, is selling well but not well enough to offset weaker shipments for low- and mid-tier devices. Its next big product launch, the Galaxy Note 4, is expected later this year but is not forecast by analysts to be a game-changer.

Its foray into wearable devices like the Gear smartwatch, meanwhile, remains at an early stage and faces tough competition from Apple and others. That leaves Samsung Electronics under margin pressure and without a clear new growth driver for the immediate future.

“Samsung’s heir apparent has no magic wand. It’s not something he can tackle in one or two years,” said Chang.

Samsung has said it will boost dividends, and those plans are expected to be detailed when full results for the three months ended June are released later this month.

That may placate investors who have sent its shares down about 5 percent this year, lagging the flat performance of the benchmark Korea Composite Stock Price Index. Some analysts have also said it could buy back shares this year, part of a broader group restructuring tied to succession.

“Obviously, paying dividends is better than nothing, but I question how much merit there is to that given how tech companies are supposed to be growth stocks,” said Um Joon-ho, fund manager at Kiwoom Asset Management.

Samsung’s cash cow handsets business is suffering from slowing market growth and improving product quality from Chinese manufacturers such as Huawei Technologies and Lenovo Group.

Reuters




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