Samsung hurt after JP Morgan estimates cut

June 7, 2013 9:14 am

Samsung Electronics, the biggest rival of Apple in tech industry, suffered $12 billion in market value today hit by analysts’ downgrade on its profit estimates. JP Morgan Chase specialists cut forecasts as expecting tech giant to slow sales on its flagship product – Samsung Galaxy S4.

The company’s shares plunged 6.2% to 1 427 000 won as the close of trade representing firm’s largest daily drop since last summer. JP Morgan cut Samsung’s share price estimate with 9.5% due to the slowing European sales of their flagship product.

Company introduced a more affordable and less powerful stripped-down version of the phone. That would definitely increase its market presence and sales. However, the price company would have to pay is contracting revenue as cheaper versions of the phone are not able to compete with high profit margins of competitors’ products.

“As the portion of low- to mid-range handsets is expected to increase in Samsung’s overall mobile phone business, this has also sparked concerns about thinning margins and lower growth.” said Kim Young-chan, an analyst at Shinhan Investment Corp. cited by Yahoo Finance.

The news that Apple used Samsung technology in older devices has been boosting Samsung’s image recently. Apple, their main competitor, has been banned from importing those products by the US International Trade Commission. In an answer to the ban Apple decided to run a program to allow their users to return old phones and upgrade to the newest model.

“With Apple widely expected to announce an older iPhone trade-in program and also a new cheaper iPhone, overall growth prospects for (Samsung’s) smartphone business have dimmed,” said Kim Hyun-yong, an analyst at E*trade Securities cited by Yahoo Finance.

Both tech giants have been struggling recently as they have been involved in couple of hearings due to lawsuits and trials trying to get the upper-hand in those debates. That accumulation of negativism led their share price plunging yesterday. Apple fell 1.49% and Samsung closed at a loss of 6.18% per share.

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