S. Korean smartphone maker loses more ground to rivals from China

Samsung Electronics Co posted its biggest drop in quarterly profit since 2009, as the world's largest smartphone maker lost further ground to Apple Inc and other Chinese competitors.

Operating profit fell 60 percent to 4.1 trillion won ($3.8 billion) in the three months ended September from a year earlier, the Suwon, South Korea-based company said in a regulatory filing on Tuesday.

Samsung is rolling out new products in the battle to stay on top as Apple wins customers with larger-screen devices, an area the Galaxy maker has dominated, and Xiaomi Corp and Lenovo Group Ltd pack features into cheaper models. Declining share of shipments in China and India, plus lower demand for Samsung's high-end products, are eroding profit from the units supplying displays and processor chips.

"The market thinks this is the worst profit they can expect from its mobile business; it won't go any lower from here as more product lineups are expected throughout this year into next year," Claire Kim, a Seoul-based analyst at Daishin Securities Co, said. "Samsung is better positioned than any other players out there to bring out new phones with upgraded hardware features."

Sales were about 47 trillion won in the quarter, the company said. That compares with the 50.3 trillion won average of 40 estimates.

Samsung didn't provide net income or details of division earnings, with audited results due to be reported later this month.

While total smartphone shipments rose in the quarter, the mobile unit's profit margin shrank on higher marketing spending and lower average selling prices for devices, Samsung said in a statement.

Third-quarter operating profit at the mobile unit, the company's biggest business, was probably 2.5 trillion won on sales of 26 trillion won, according to the median estimates of five analysts surveyed by Bloomberg News.

The unit's profit fell from a record 6.7 trillion won a year earlier.

"The company is preparing new smartphone lineups featuring new materials and innovative designs," Samsung said. The company is also developing new mid- to low-end devices to help it compete, it said.

Samsung released its Note 4 late last month to help defend its share of large-screen phone sales from the new iPhone 6 and iPhone 6 Plus that debuted Sept 19.

Neil Mawston, executive director of Strategy Analytics in London, said: "The Note 4 will help to stabilize Samsung's device unit in the fourth quarter, but it will need more than one evolutionary model to stop the iPhone juggernaut."

Samsung probably shipped 12 million units of its marquee S5 smartphones in the third quarter, compared with about 18 million units sold in the second quarter, according to I'M Investment & Securities Co.

The display unit, which dominates the market for screens using organic light-emitting diodes, probably posted an operating loss of 120 billion won, compared with profit of 980 billion won a year earlier, amid slowing sales of marquee Samsung models, according to the Bloomberg News survey.

The company's OLED displays, which offer sharper images at lower power than most liquid-crystal displays, are mainly used for Samsung's own high-end smartphones.

Profit at the display business should improve next year with Chinese smartphone makers set to adopt OLED screens, said Daishin's Kim. Samsung may also start applying its new technologies, such as higher-margin flexible displays, to boost the unit's earnings, Kim said.

(China Daily USA 10/08/2014 page16)