Samsung reports record quarterly profits but shares tumble

Samsung yesterday reported record quarterly profits but its shares tumbled on doubts its mainstay smartphone business can maintain rapid growth.

Samsung estimated its April- June operating profit at a record high of 9.5tn won (€6.4bn). That is a 47% jump from a year earlier and 8% growth from the previous quarter.

But it fell short of forecasts by analysts who held higher expectation for the world’s largest smartphone maker.

Analysts surveyed by FactSet, a financial data provider, forecast operating income of 10.2tn won on average. Samsung shares dropped nearly 4% in Seoul. Sales grew 20% to 57tn won.

Sales of the latest iteration of Samsung’s flagship smartphone, the Galaxy S4, hit 10m units in May, less than a month since its debut. Sales of the S4 hit the 10m mark about 20 days faster than the previous model.

Analysts say high marketing costs probably weighed on Samsung’s mobile business despite the robust sales in the first month.

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

The popularity of Galaxy smartphones has fuelled Samsung’s year-long string of record quarterly earnings.

But worries have emerged that Samsung’s profit growth will slow as developed countries near a smartphone saturation point.

Fewer wow factors in new smartphones mean people will not upgrade as quickly as they once did, forcing device makers to spend more on advertising and marketing.

South Korean telephone firms reduced 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.

Another concern is that Samsung is increasingly relying on its mobile business for growth. Samsung’s division that makes and sells mobile phones, tablets, and cameras contributed 75% of its operating income in the first quarter of this year.