Samsung profit hit as smartphone growth slows

  • 31 July 2014
  • From the section Business
Samsung gadgets on display
Image caption The success of its Galaxy smartphones has seen Samsung become the world's biggest phone maker

Profits at Samsung Electronics fell 20% in the second quarter, hurt mainly by a slowdown in smartphone sales and a strong Korean currency.

It made a net profit of 6.25 trillion won ($6.1bn; £3.6bn) in the April-to-June period, down from 7.77 trillion won a year ago.

When compared to the previous quarter, its profit was down 17%.

Samsung is the world's biggest maker of mobile phones and the handset division accounts for the bulk of its profits.

"The second quarter was affected by several factors including the slow global sales of smartphones and tablets and escalating marketing expenditure to reduce inventory," the firm said in a statement.

Currency factor

Meanwhile, a stronger Korean currency also hit Samsung's earnings during the period.

The Korean won rose more than 11% against the US dollar and nearly 7% against the euro between July 2013 and end of June this year.

A strengthening currency hurts profits of firms such as Samsung - which rely heavily on exports - when they repatriate their foreign earnings.

Samsung said a stronger currency "amounted to about 500bn won in missed revenues".

'Profitability may suffer'

Samsung's growth in recent years has been powered mainly by its mobile phone division.

The success of its Galaxy range of smartphones, coupled with a growing global demand for such gadgets, saw it displace Nokia as the world's biggest mobile phone maker in 2012.

However, the pace of growth of the smartphone market has been slowing down and the competition in the sector has also increased.

Various other smartphone makers including China's Xiaomi, Huawei and ZTE have been increasing their market share steadily.

That has forced manufacturers to cut costs of their devices in an attempt to attract consumers, hurting their profitability.

Operating profit at Samsung's phone division fell 31% during the April-to-June period, from the previous three months.

The firm also warned that "prospects for growth remain unclear as competition over global market share intensifies in the mobile industry".

"Samsung expects to see its sales of mobile devices increase with the rollout of flagship products and new models, but profitability may suffer due to a heated race over price and product specifications," it added.

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