Afghans walk past a Samsung shop in Kabul, Afghanistan on July 1 2018. REUTERS/Omar Sobhani
Afghans walk past a Samsung shop in Kabul, Afghanistan on July 1 2018. REUTERS/Omar Sobhani

Seoul — On Friday, South Korean telecom giant Samsung Electronics flagged a 5.2% rise in its second-quarter operating profit from a year earlier, missing analyst estimates.

Samsung’s operating profit is expected to come to 14.8-trillion won ($13.2bn) for the April-June period, higher than the 14.07-trillion won in the same period in 2017, but down from the record 15.64-trillion won of the previous quarter.

The forecast came in at the low end of the market consensus, which averaged 15.3-trillion won.

"It’s a bit disappointing," Ko Gyeong-beom at Yuanta Securities Korea said, noting that the company had posted expectation-beating operating profits in several previous quarters.

Industry sources said smartphone sales were weaker in the face of mounting competition from rivals and increasing marketing costs for new mobile products.

Weak LCD display prices and a slow display screens sector are also blamed for the disappointing results, they said.

"The shipment and prices of the flagship smartphone Galaxy 9, rolled out in the first quarter, fell shy of expectations," said Yoo Jong-woo, an analyst with Korea Investment and Securities.

The company’s strong semiconductor business filled the gap as robust sales of TV sets also helped, analysts said.

Samsung’s chip making unit — currently dominating the global market after the firm invested tens of billions of dollars to build and expand factories — provides chips for Samsung devices as well as those of competitors including Apple.

The semiconductor sector will remain strong in the third quarter with dynamic random-access memory (DRAM) chip prices maintaining an upward swing due to strong demand for servers, analysts said.

But IT and mobile business is expected to remain slow due to rising competition from Apple and Chinese rivals, they said.

"With semiconductor and display sectors taking the lead, Samsung will see a drastic improvement in results in the third quarter," Greg Roh of HMC Investment and Securities said.

"We expect the third quarter operating profit to hit 17-trillion won," a new record, he added.

Park Won-jae of Mirae Asset Daewoo was also optimistic, citing solid semiconductor prices and stable demand for display screens.

Regardless of the 5.2% year-on-year increase, the second-quarter operating profit fell far short of the record high of 15.6-trillion won tallied for the first quarter of 2018.

It thus failed to stretch quarter-on-quarter operating profit growth into the seventh consecutive quarter.

Samsung withholds net profit and sector-by-sector business performance data until it releases its final earnings report, which is expected later in July. Samsung Electronics shares fell 2.3% to close at 44,900 won on Friday, reflecting the let-down.

Samsung’s stock value has fallen more than 15% following a 50-1 stock split two months ago aimed at allowing smaller investors to buy into the giant company.

"Mainly due to concerns over the slow smartphone sales, the share price has been weak over the past two months," Lee Soon-hak at Hanwha Investment and Securities said.

Adding to this stress, regulators pressed Samsung Life Insurance, a financial arm of the Samsung Group, to sell a large portion of its 8.23% stake in Samsung Electronics as the government attempts to cut back the influence of the country’s family-controlled conglomerates.

Samsung’s reputation was dealt a blow by the bribery conviction of Lee Jae-yong — the son and heir of the group’s current chairman Lee Kun-hee.

Lee Jae-yong was a key figure in the scandal that ousted former South Korean leader Park Geun-hye following massive nationwide protests, and was sentenced to five years in jail in 2017.

But the sentence was reduced on appeal in February to a suspended jail term, and Park was released after spending nearly a year in prison.

South Korean President Moon Jae-in plans to attend the opening ceremony of a new Samsung Electronics $650m smartphone plant in Noida, India, next week, where he is expected to meet Lee Jae-yong for the first time since he took power in May 2017.