Samsung Electronics Co., the world's top maker of smartphones, said Thursday its second-quarter net profit fell 19.5 percent from a year earlier as its mainstay handset business suffered from rising competition in the global market.
Net income came to 6.25 trillion won (US$6.1 billion) in the April-June period, compared with 7.77 trillion won a year earlier, the company said in a regulatory filing.
Sales fell 8.89 percent on-year to 52.35 trillion won in the second quarter. Its operating profit came to 7.19 trillion won, down 24.59 percent from the previous year.
It is the first time for Samsung's quarterly operating profit to fall below the 8 trillion won mark since the second quarter of 2012, when it posted a 6.46 trillion won.
The figures were in line with Samsung's guidance released earlier this month that estimated the second-quarter operating profit at 7.2 trillion won and sales at 52 trillion won.
Samsung said operating profit of its IT and mobile business division, the company's main revenue source, fell 29.6 percent on-year to 4.42 trillion won in the second quarter from 6.28 trillion won a year earlier.
The company said the division's weak earnings reflect demands for its smartphones and tablet PCs all losing ground in the second quarter from the three-month period earlier.
While it vowed continued efforts to beef up its mainstay business, the company said that prospects of a recovery remains cloudy for the time being, citing the rising competition in the market.
Samsung took up 25.2 percent of the global smartphone market in the April-June period, down 7.1 percentage points from the 32.3 percent last year, the latest data compiled by market researcher IDC Corp. showed.
It shipped 74.3 million units of smartphones in the second quarter, down 3.9 percent on-year, according to the data. It compares with Huawei's sales of 20.3 million units over the cited period, up 95.1 percent from a year earlier.
The rising presence of Chinese players has been cited as major reasons for Samsung losing ground in the mobile division, as they rapidly narrowed gap with traditional leaders in the low-end sector.
The relatively sluggish sales of its flagship Galaxy S5 also limited the mobile sector's performance. The combined shipment of the Galaxy S5 is estimated at 17 million units over the April-June period, compared with 20 million units for the Galaxy S4 in the first three months since its launch. The Galaxy S5 commenced official sales at end-March.
The company said it will tap deeper into the wearable market and widen its business portfolio to seek new growth engine for the future.
Samsung had debuted the Samsung Gear Live, the first in this year's wearable lineup that works under Google Inc.'s Android Wear platform, in June.
The dust-and-water resistant Galaxy Gear Live comes with a 1.63-inch active mode organic light emitting diode (AMOLED) display along with a built-in heart rate monitor that works with a handful of fitness applications.
Samsung's device solution division logged an operating profit of 2.09 trillion won, down 28.4 percent from the previous year.
By sector, its chipmaking business posted an operating profit of 1.86 trillion won, improving 5.6 percent on-year.
Its display panel sector's operating income came to 220 billion won, plunging 80.3 percent from 1.12 trillion won last year.
The device solution affiliate was affected by the falling performance of its system large scale integration (LSI), although its dynamic random-access memory (DRAM) and NAND flash arm performed relatively well, the company said.
The profitability of the DRAM business was improved by the launch of models for PCs and mobile severs in the 20-nano-level lineup, it said.
Samsung painted a brighter outlook for the third quarter for the chip division, betting on seasonal demand to drive up sales.
The display panel business, which suffered an operating loss in the first quarter, also improved due to rising sales of liquid crystal display (LCD) TV panels and smartphone OLED panels.
The company expected the sales for LCD panels will continue to grow on seasonal demands, while the OLED sector may face challenges from competition. Samsung said it will focus its capability on flexible panels.
Samsung has been trying to increase the market for flexible screens this year, introducing Samsung Gear Fit in February. The wearable device that comes with a curved Super AMOLED display works on a real-time operating system (RTOS).
The operating profit for Samsung's consumer electronics division came to 770 billion won in the April-June period, rising 79 percent over the cited period.
Samsung said the consumer division gained ground as the demand for high-end models, such as Ultra HD TVs and curved TVs, grew on the back of global sports events such as the FIFA World Cup in Brazil.
Industry watchers said the stronger South Korean won also limited Samsung's overall performance throughout all divisions. The won closed at 1,011.80 against the greenback at end-June, up 4.9 percent from the 1,064.70 won posted at end-March.
A higher won inflicts foreign-exchange losses on South Korean exporters, making their goods lose price competitiveness against other global rivals.
Samsung has been carrying out belt-tightening moves since the announcement of second-quarter earnings guidance earlier this month, including cutting unnecessary costs such as business trip budgets, market sources said.
It also plans to reassign 150 to 200 staff members from its head office to its business divisions, relocating employees in finance, human resources and public relations to sectors such as sales and production management.
Executives of Samsung Electronics' mobile division had returned about 25 percent of their bonuses for the first half of the year earlier this month to the company, due to the division's lackluster second-quarter earnings.
The company, however, remained unaffected by the hospitalization of Lee Kun-hee, who heads Samsung Electronics, which some had said would work negatively to the company's business operation down.
Lee, 72, has been hospitalized since mid-May after suffering a heart attack, raising speculations about management transfer to his three children and across-the-board restructuring at Samsung Group.
Industry watchers said Samsung is set to release a new type of smartphone in the third quarter to recoup prior losses from the April-June period. The device is anticipated to be set apart from the Galaxy S or Galaxy Note lineup.
Analysts estimate Samsung will post a net profit of 6.8 trillion won for the July-September period, with an operating profit of 7.8 trillion won and sales of 53.1 trillion won, according to the data compiled by Yonhap Infomax, the financial and information arm of Yonhap News Agency.
Shares of Samsung Electronics closed at 1,395,000 won on Wednesday, up 0.65 percent from the previous session, when the KOSPI advanced 1 percent. (Yonhap)