Samsung staring at first annual profit fall in 3 years

Samsung Electronics continues its struggle to retain the position as world leader as company’s fourth-quarter profit fell 37.4%, adding to the worries of the South Korean tech giant.

The company lost market share for three consecutive quarters up to July-September, and experts say the trend likely continued in the October-December period thanks to stiff competition from Apple’s new iPhones and cheaper Chinese rivals like Xiaomi.

Samsung said its fourth-quarter operating profit is likely to be 5.2 trillion won ($4.74 billion), beating a mean forecast of 5 trillion won from a Thomson Reuters survey of 44 analysts.

The outlook means Samsung’s 2014 profit will probably be 25 trillion won, the weakest in three years.

HMC Investment analyst Greg Roh said, there were concerns about the mobile division but it looks like the won’s recent weakness against the dollar and the Galaxy Note 4 impact helped. He was referring to solid sales of Samsung’s latest flagship phone. He expected profits to continue improving through at least the second quarter of 2015.

Several analysts say the semiconductor division to have earned more than the cash cow mobile business in October-December, buoyed by healthy demand for memory chips from personal computers and smartphones.

The company, however, did not provide a breakdown of its earnings figures in outlook, but a person with direct knowledge of the matter said that components sales picked up across the board, with healthy demand for memory chips and higher liquid crystal display panel prices.

According to sources, the mobile division’s contribution to Samsung’s profit has slipped from about 68% at its peak in 2013 to about 44% in the third quarter, as its high-end offerings lost out to Apple’s iPhones.

The mobile division’s fourth-quarter profit improved slightly from the previous quarter due to a pickup in sales of premium products like the Galaxy Note 4 and lower marketing costs, the person with knowledge of the matter said, requesting anonymity because they were not authorized to speak publicly.

Analysts say the company’s new focus on mid-to-low tier smartphones will squeeze margins and cap profits, offsetting the benefits of the expected increase in sales.

Samsung is talking up its internet of things-related businesses such as the smart home as the next big thing, while launching new quantum dot televisions and metal-body smartphones to boost earnings.

But investors do not expect a profit surge from Samsung in the near term.

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