Samsung Drops $10 Billion in Market Value on Stalling S6

Samsung Electronics Co.'s Galaxy S6
Samsung Electronics Co.'s global smartphone market share fell more than 3 percentage points in the second quarter. Photographer: Andrew Harrer/Bloomberg

Sluggish sales of Samsung Electronics Co.’s Galaxy S6 smartphones helped trigger a share decline that wiped more than $10 billion from its market value in July -- almost twice the capitalization of local rival LG Electronics Inc.

The stock dropped 6.6 percent this month as the world’s biggest smartphone maker posted its fifth straight profit decline and said it would cut prices for its new high-end devices less than four months after their debut. The Suwon, South Korea-based company also warned of slowing growth in the device market and tepid demand for memory chips.

Samsung’s global smartphone market share fell more than 3 percentage points in the second quarter amid surging sales of Apple Inc.’s iPhones and tougher competition from Chinese vendors including Xiaomi Corp. It misread demand for the S6 models released in April, failing to produce enough three-sided screens for the Edge while the regular version struggled against the bigger iPhones.

“I don’t see a clear answer for its smartphone business,” said Marcello Ahn, a Seoul-based analyst at Quad Investment Management Co. “The vacuum of its business momentum will persist throughout this year and even into next year, giving investors less reason to snap up shares.”

Samsung will be “adjusting” prices for the S6 and S6 Edge to maintain sales growth, the company said Thursday after reporting that net income, excluding minority interests, fell to 5.63 trillion won ($4.9 billion) in the three months ended June. That missed estimates and prompted the biggest decline in shares in four months.

Bearish Outlook

Shares of Samsung fell to 1,185,000 won in Seoul on Friday, down from 1,268,000 won on June 30. The 6.6 percent decline wiped out more from Samsung’s market value that the company has ever posted in quarterly operating profit.

The Kospi index, of which Samsung is the biggest member, fell 2.1 percent in July.

Samsung has dropped 11 percent this year and is on course for its biggest annual decline since the global financial crisis. The company has more than $43 billion of cash.

Operating profit at the mobile phone unit slumped to 2.76 trillion won from 4.42 trillion won a year earlier. Samsung sold 89 million handsets, with smartphones accounting for more than 80 percent of those.

Samsung will add more middle- and low-end models, and cut spending in the phone division, it said. The company will unveil its next Note device on Aug. 13, earlier than the company’s usual schedule. Apple typically releases a new product in the second half of the year.

Profit at Samsung’s semiconductor business, which makes memory chips and applications processors, was 3.4 trillion won, compared with 1.86 trillion won a year earlier.

The chip division was the biggest beneficiary of the new S6 as its mobile unit switched to in-house applications processors and modem chips instead of those from Qualcomm Inc.

“I don’t think we can promise a bullish outlook for that as well since more chip supply from rivals is expected in the second half, while demand for personal computers and smartphones will keep dwindling,” Ahn said.

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