Samsung Corporate HQ (image 001)

Samsung today issued its earnings guidance for the second quarter of 2014, and in somewhat of an odd move, it attached a note to the document explaining why it will fall short of estimates. The company expects to see its profits drop for the third consecutive quarter.

The note details a number of factors, including the improving strength of the Korean won making exports more expensive, and exceedingly sluggish tablet sales. It also explains that it is running into greater competition in China from low-end device makers like Xiaomi…

From Samsung’s 2Q Earnings Guidance: Reference Material document via The Wall Street Journal:

The earnings forecast is the result of the strong Korean currency throughout the second quarter as it appreciated against the dollar, euro and most emerging market currencies. The company also witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets. And this led to higher inventories for the medium- and low-end smartphones. […]

With the release of new smartphone devices in the second quarter, Samsung launched various promotions to reduce existing inventories in sales channels and this increased the company’s marketing expenditure compared to the previous quarter. The weak demand for smartphones also affected the System LSI and the display businesses that provide key components and screen technologies. 

Samsung adds that it “cautiously” expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. It also anticipates better performance from its display panel/component businesses, as competitors look to ramp up production this fall.

Known for its ability to fill every niche in the smartphone market, Samsung is in a bit of a foreign position right now. Competition in the low-end is heating up thanks to makers like Xiaomi and Lenovo, and it’s about to lose its grip on the premium 5-inch+ market thanks to Apple.

Apple is scheduled to reveal its Q3 2014 earnings on July 22nd, and it’ll be interesting to see what kind of numbers it puts up. Because both it and Samsung, as well as other manufacturers, are going to soon start running into a much broader problem of smartphone saturation.