July 8 (Bloomberg) -- Samsung Electronics Co. forecast a recovery in sales after the world’s biggest smartphone maker posted second-quarter profit that missed analyst estimates on competition from Chinese makers and gains in the Korean won.
New products and demand for displays will boost results in the third quarter, the Suwon, South Korea-based company said in a statement today. Operating income fell about 24 percent to 7.2 trillion won ($7.1 billion) in the three months ended June, the company said, the third straight quarterly drop.
Samsung is counting on demand for fourth-generation devices to revive growth as Apple Inc. lures premium customers and Chinese manufacturers Xiaomi Corp. and Lenovo Group Ltd. pack features into cheap phones to lure budget buyers. Currency moves cut the value of overseas earnings as the South Korean company’s grip on the market for screens larger than 5 inches faces new competition, with Apple said to be preparing bigger iPhones.
“Samsung earnings will rebound in the third quarter, largely driven by explosive demand for 4G smartphones in China,” Claire Kim, a Seoul-based analyst at Daishin Securities Co. said by phone. “If Samsung can maintain at least 20 percent market share in that segment, it will see higher smartphone sales during the quarter when the significant impact from Apple’s new devices isn’t yet expected.”
The operating profit of 7.2 trillion won compares with the 8.1 trillion-won average of 34 analyst estimates compiled by Bloomberg. Expectations have been scaled back for Samsung with at least 25 analysts cutting earnings estimates in the last four weeks. The average operating profit estimate has fallen about 13 percent from 9.3 trillion won on May 12.
Shares of Samsung rose 0.2 percent to close at 1,295,000 won in Seoul trading, paring a 5.6 percent decline this year. The stock dropped 9.9 percent last year, its first annual decline since 2008.
Sales were about 52 trillion won in the quarter, the company said today. That compares with the 53.2 trillion-won average of 37 estimates.
“The second quarter is a seasonally weak period for smartphone demand in China,” Samsung said in an e-mailed statement. “The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter.”
Samsung didn’t provide net income or details of division earnings with audited results due to be reported later this month.
Second-quarter operating profit at the telecommunications unit, which generates more than 70 percent of earnings, was probably 5.1 trillion won on sales of 31 trillion won, according to the median estimate of six analysts surveyed by Bloomberg News. The unit’s profit has fallen from a record 6.7 trillion won in the third quarter of 2013.
The Galaxy S5 with a 5.1-inch screen was released with as much as $600 in freebies as Samsung seeks to defend itself against Chinese producers. Samsung sold 10 million units of the S5 within 25 days of its global release, a record for a Samsung device, the Korea Daily reported May 10 without citing anyone.
The company’s total smartphone shipments slid to 78 million units in the second quarter from 87.5 million units sold in the first quarter, according to IBK Securities Co.’s estimate.
“We see some concerns in the second half of the year as Apple is set to launch iPhone 6 device with larger screen size,” Marcello Ahn, a Seoul-based analyst at Quad Investment Management Co., said by phone today. “Manufacturing capabilities of Chinese smartphone makers, such as Xiaomi and Lenovo, have significantly improved enough to even compete well against Samsung’s lower-end smartphone models.”
Slower sales of tablet computers also forced analysts to slash their sales estimates. Greg Roh, an analyst at HMC Investment Securities Co. in Seoul, cut his tablet forecast 15 percent to 8.5 million units in the quarter.
Suppliers to Apple in China will begin mass production of its largest iPhones ever next month, with screens as large as 5.5 inches, according to people familiar with the plans.
Any move by Apple, which uses a 4-inch display on its current iPhone 5s, would weaken Samsung’s grip on the market for large screen devices with products such as its 5.7-inch Note.
The Korean won gained 5.2 percent versus the U.S. dollar in the second quarter, according to data compiled by Bloomberg. The currency lost 2.6 percent versus the dollar in the same period a year ago.
The display unit, which dominates the market for screens using organic light-emitting diodes, probably had operating profit of 270 billion won in the second quarter, down 76 percent from a year earlier, according to the Bloomberg News survey.
Operating profit at Samsung’s consumer-electronics division, which oversees the TV and home-appliance businesses, probably rose to 490 billion won from 430 billion won a year earlier, according to the analyst survey.
Aggressive marketing of new TV sets using ultra high-definition and demand ahead of the World Cup in Brazil boosted earnings at the unit.
Chairman Lee Kun Hee, South Korea’s richest person, was hospitalized after a May heart attack.
Profit at Samsung’s chip unit, which supplies its own devices and also rivals such as Apple, nearly doubled to 2.1 trillion won on sales of 9.5 trillion won, according to the Bloomberg News analyst survey.
Benchmark DDR3 2-gigabit dynamic random-access memory chips closed at $2.26 on July 7 after trading at $2.81 on Jan. 17, according to data from inSpectrum Inc.
To contact the reporter on this story: Jungah Lee in Seoul at email@example.com
To contact the editors responsible for this story: Michael Tighe at firstname.lastname@example.org Robert Fenner, Aaron Clark