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Samsung’s Profit Growth Weighed Down By Its Mobile Business Issues

Samsung’s Profit Growth Weighed Down By Its Mobile Business Issues
Samsung Electronics Co Ltd warned investors of tough times because of increased competition for the mobile sector after it reported its worst quarterly profit growth rate in over a year partly because of slow sales of its Galaxy S9 smartphones.
Compared to a year ago, there was a 34 per cent drop in the operating profit from the mobile business of the supplier of Apple components and rival in the smartphone market which marked the fastest slowdown for the company since Q1 of 2017 because of pressure from cheaper Chinese products.
There was little that the investors could rely on for a turnaround in the fortunes of the South Korean tech giant’s mobile business because of tougher rivalry during the second half of the year even as market experts anticipate lower sale growth in premium phones of the company due to lack of innovation.
“Samsung was already lost to China in price competition and is getting threatened by Chinese models in designs and hardware strength,” said Park Jung-hoon, a fund manager at HDC Asset Management that owns Samsung shares.
“It is not an easy game for Samsung unless it really meets consumers needs for new smartphones.”
Samsung said that the performance of the mobile business of the company was weighed down by high expenses for marketing and slow sale of the S9.
The company added that in the next few months there would be more competition because of release of new smartphones from rivals. As a counter measure, Samsung would “seek to expand sales by introducing a new Galaxy Note earlier than usual”, the company added.
A new Note is slated to be launched by Samsung early next month.
Markets are expecting Samsung rival Apple to announce an increase in revenue and profit in the third quarter on Tuesday and would be driven by strong sale of its iPhones even when there is a period of slower sale growth for the global smartphone market.
Markets are waiting to understand whether the difficulties being faced by Samsung in the mobile segment – which generates about 40 per cent of its revenue, is because of internal problems of the company or a fall out of the general slowness of the smartphone market.
Samsung reported a 5.7 per cent increase in operating profit at 14.9 trillion won ($13.3 billion) for the second quarter which was just higher than the its own expectations of 14.8 trillion won.
There was a drop of 4 per cent in revenue at 58.5 trillion won for the same period.
The operating profit of the mobile business saw a drop of 34 per cent at 2.7 trillion won in Q2. 
On the other hand, the chip business of the company continued to be the top contributor to earnings in the second quarter as prices of its DRAM chip increase because of greater demand from cloud-computing and crypto-currency industries even though there was a drop in the prices of the NAND flash memory.

Christopher J. Mitchell

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