Samsung Boosts Capital Spending as Phones Fail to Revive Growth

Inside Tokyo Game Show 2015

An attendee tries a video game on a Samsung Galaxy Gear Virtual-Reality (VR) headset.

Photographer: Tomohiro Ohsumi/Bloomberg
  • Third-quarter profit misses estimates on tepid high-end sales
  • Earnings in the December quarter forecast to decline

Samsung Electronics Co. said it will increase capital spending after posting profit that missed analysts’ estimates as price cuts on new Galaxy S6 smartphones failed to sway consumers from buying iPhones.

Capital expenditure will rise 14 percent to 27 trillion won ($24 billion) this year, the company said Thursday. Net income, excluding minority interests, was 5.31 trillion won ($4.7 billion) in the third quarter with profit to fall in the current period, Samsung said.

Increased marketing spending, including a $120 rebate program, hasn’t sparked sales of the premium devices that generate fatter profit margins. Samsung is investing in computer chip plants as it tries to revive Galaxy smartphone demand through a new mobile payment service and by releasing larger devices at least a month before the new iPhones to recapture market share from Apple Inc.

“In the fourth quarter, the company expects earnings to decline from the earlier quarter, as it does not expect the foreign exchange rate to have a positive effect in the fourth quarter,” Samsung said.

Shares of Samsung rose 0.8 percent to 1,308,000 won in Seoul on Wednesday. The stock has dropped 1.4 percent this year, compared with a 6.6 percent gain in the benchmark Kospi index.

Sales in the quarter were 51.7 trillion won, compared with estimates for 50.7 trillion won.

“Samsung’s lower-end smartphones under $150 sold well, but it didn’t help lift the margins at all," Lee Seung Woo, an analyst at IBK Securities Co. in Seoul, said before the earnings release. “Aggressive marketing in the U.S. can help Samsung expand its Galaxy share of the high-end space, but it’s giving up a substantial profit margin for it.”

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