Samsung Electronics forecasts drop in profits

Samsung Galaxy S5 on display Samsung's smartphones have been key drivers of its growth in recent years

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Samsung Electronics, the world's biggest maker of TVs and mobile phones, has forecast a drop in profit for the second quarter in a row.

It expects to make an operating profit of 8.4 trillion won ($7.9bn; £4.8bn) for the January-to-March quarter, down 4% from the same period last year.

This follows a 6% decline in operating profit in the previous quarter.

The drop indicates the challenge faced by Samsung to boost its earnings amid falling prices of smartphones.

Young Park, an analyst with Hyundai Securities said that Samsung's profits were being hurt by falling margins for smartphones as well as a slowdown in the growth rate of the sector.

Cost cutting?

Start Quote

In some sense, Samsung has no way to prevent a decline in its earnings without improving internal efficiencies”

End Quote Greg Roh HMC Investment and Securities.

The success of Samsung's Galaxy range of smartphones has been one of the biggest drivers of its growth in recent years.

But is has been facing rising competition as companies look to tap into the sector's growth.

Rivals Apple, HTC and Chinese manufacturers such as Lenovo, ZTE and Huawei have all been looking to boost their market share.

That has prompted vendors to reduce prices to attract more customers, putting pressure on their profit margins.

Earlier this year, Samsung had warned that it expects competition in the sector to "intensify" further.

One analyst said that as profit margins in the sector continue to fall, Samsung may need to cut costs to sustain its earnings growth.

"What Samsung needs to do this year for additional growth are things like cost reduction and reducing marketing costs," said Greg Roh, an analyst with HMC Investment and Securities.

"In some sense, Samsung has no way to prevent a decline in its earnings without improving internal efficiencies."

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