Samsung just can’t catch a break.
Although Korean investors thought the flagship Galaxy S6 and Galaxy S6 Edge smartphones would turn Samsung’s fortunes around, the financial freefall continued when the South Korean conglomerate said Tuesday it expected to report a decline in revenue and profits when its second-quarter results go public later this month.
As the Wall Street Journal noted today, the unfortunate development marks Samsung’s seventh straight quarterly profit decline. A source attributed worse than expected results to seemingly lackluster sales of Samsung’s latest flagship handsets and a gross miscalculation in demand for the Galaxy S6 versus the Galaxy S6 Edge.
For the June quarter, Samsung is expecting revenue of 48 trillion won (approximately $42.35 billion), a drop in revenue of 8.4 percent from the same period a year ago.
Operating profits are expected to decline by four percent year-over-year to 6.9 trillion won, or approximately $6.1 billion. The consensus for second-quarter earnings was somewhere in the high 7 trillion won, or about $6.2 billion.
“I think so long as the first digit doesn’t start with a six it won’t be a shock,” HDC Asset Management fund manager Park Jung-hoon said to Reuters yesterday.
Analysts estimate Samsung shipped 71 million to 76 million smartphones, versus a Strategy Analytics-estimated 74.5 million handsets shipped a year ago. The company does not report the exact number of smartphones and tablets shipped for competitive reasons. Apple continues to report how many iPhones and iPads were sold in each quarter.
The Galaxy S6 and Galaxy S6 Edge were estimated to have accounted for slightly more than twenty percent of the quarterly shipments, or a combined fifteen million units, at best.
Samsung stopped short of revealing the cause behind another quarterly drop in revenue and profits, but a source told The Wall Street Journal the firm grossly mismanaged demand for the Galaxy S6 versus the Galaxy S6 Edge, despite the fact that both devices were praised by reviewers and greeted with strong advance orders from consumers.
Internally, Samsung expected to sell four Galaxy S6 devices for each Galaxy S6 Edge that it sold. Demand was much likely closer to even for the two devices, resulting in unsold Galaxy S6 inventory and the inability to fulfill orders for the Galaxy S6 Edge.
Samsung responded to supply constraints by increasing Galaxy S6 Edge production, but its plants in Vietnam are still struggling to reconfigure manufacturing operations.
The South Korean conglomerate has its tentacles in a range of industries, from mobile and household appliances to TV sets and consumer electronics to insurance, heavy industry, medical equipment and more.
The very profitable mobile division has become a jewel in Samsung’s crown in years past. But as Apple cancelled out Samsung’s crucial advantage—large-screened smartphones—with the release of the iPhone 6 and iPhone 6 Plus, Samsung started feeling the heat.
It’s also not helpful that Samsung has been under attack on the low-end by Chinese competitors that have been putting out very capable devices which cost far less than Samsung’s flagship phones.
So, while sales of the latest Galaxy phones have not met expectations because of the iPhone, Samsung’s high-volume, low-cost feature phones are increasingly less attractive to cash-strapped consumers due to fierce competition coming out of China.
Samsung is expected to report precise second-quarter earnings later this month. Apple is scheduled to reveal June quarter earnings on July 21.
Source: The Wall Street Journal