Samsung Electronics Co. Ltd’s share price up, posts declining operating profit

Samsung Electronics Co., the largest mobile phone manufacturer, reported disappointing second-quarter earnings on Tuesday. A stable Korean won and fierce competition from ever higher-quality Chinese devices are said to have impacted sales the most.

The company revealed that its operating profit declined by about 24% on an annual basis and reached 7.2 trillion won ($7.1 billion) over the second fiscal quarter ended June. This is the third consecutive quarterly decline. Sales fell 9.5%. The results follow an annual decrease of 3.3% in operating profit for the first quarter.

Analysts suggest the lacking results are due to a strong Korean won, which gained more than 5% against the US dollar this year, and the growing competition from Chinese manufacturers.

“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,” Marcello Ahn, Seoul-based analyst at Quad Investment Management Co., said for Bloomberg today.

Still, Samsung Electronics remains optimistic about its third-quarter results. “The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone line-up,” the company commented, cited by the Financial Times.

“Samsung seems to have been too complacent with its market leadership and has not coped well with the increasing challenge from Chinese players,” Lee Seung-woo, analyst at IBK Investment & Securities, said for the Financial Times. “It trusted its brand power too much even in the lower-end market but the quality of Chinese smartphones has improved much relative to low prices. A strategy review is needed in the second half.”

Samsung Electronics Co. Ltd added 0.23% to trade at 1 295 000 South Korean won per share by 8:35 GMT today, marking a one year change of +6.67%, after dropping about 3% in the past three sessions, and a total of more than 11% for the past month. According to information published on the Financial Times, the 42 analysts offering 12-month price targets for Samsung Electronics Co. Ltd have a median target of 1,700,000, with a high estimate of 2,200,000 and a low estimate of 1,150,000. The median estimate represents a 30.17% increase from the last price of 1,306,000.