Samsung shares fall despite forecasting record profits

Samsung shares fall despite forecasting record profits

Shares in Samsung Electronics fell on Friday, despite the company forecasting it would report a record quarterly profit for the second quarter of 9.5tn won (£5.5bn), up 47% on a year ago.

But the news fell short of analysts' expectations and the shares fell by nearly 4% on the Seoul stock market.

The company was preparing to announce 20m shipments of its new Galaxy S4 phone, two months after its release but analysts are increasingly concerned that Samsung, like its principal smartphone rival Apple, is facing saturated markets in the developed world as ownership passes 50% in many countries.

Average smartphone ownership in the US and Europe is heading towards 60%, leaving few new buyers to expand the business at the high end. Mobile network operators a re also cutting subsidies for phones, making high-end phones more expensive.

South Korean networks cut subsidies for new phones this year, contributing to weaker Galaxy S4 sales in Samsung's home market and higher marketing spending for the handset maker, said Seo Won-seok, an analyst at Korea Investment Securities.

China is the fastest growth area in smartphones, but at low prices with highly competitive markets. Samsung has been releasing cut-down versions of the S4 to try to protect its market share from rivals such as ZTE and Huawei.

The saturation at the top end of the market seemed to be reflected in Samsung's Galaxy S4 figures. Though shipments of the S4 in the first month after release were twice as high as for last year's Galaxy S3, the time it took to reach the 20m mark suggested shipments were slowing to a rise of only 60%.

The co mpany still dominates the smartphone and "featurephone" business, shipping about half of all smartphones and a quarter of all mobile phones worldwide. It is the biggest seller of phones running Google's Android software, taking about 95% of all profits in the Android space.

Samsung said total sales in its electronics division had grown 20% to 57tn won (£33.2bn). It will announce its full audited quarterly results this month.

Analysts suggested that high marketing costs â€" which exceeded those for research and development for the first time in three years â€" may have hit the profit figure, despite the strong first-month sales.

"Because of the marketing costs, the telecommunications business was probably weaker than expected," said CW Chung, a n analyst at Nomura Financial Investment in Seoul. "Semiconductor and other businesses seem to have improved from the previous quarter."

Analysts cut their figures last month for the total numbers of S4 phones Samsung will ship this year from 80m to 60m.

"Apple is suffering from iPhone fatigue, while Samsung is suffering from Galaxy fatigue," Neil Mawston, executive director of Strategy Analytics, told Bloomberg before the financial announcement.

Samsung is increasingly reliant on its mobile business for growth. Samsung's division making and selling mobile phones, tablet computers and cameras contributed 75% of its operating income in the first quarter of this year. Analysts surveyed by FactSet said 60% of Samsung's second-quarter sales probably came from the mobile business.