Samsung’s estimated second-quarter 2015 figures show expected drops in revenue and profit as the huge technology company continues to be plagued by disappointing financial results.
In estimates released July 6, Samsung said it expects to report operating profits of $6.1 billion for the quarter ended June 30, which is a 4 percent drop from the same period a year ago, as well as revenue of $42.3 billion, 8.4 percent lower than the total one year ago.
The numbers are particularly disappointing at this time because in April Samsung released its new flagship smartphones, the Galaxy S6 and Galaxy S6 Edge, to battle back against Apple’s hugely popular iPhone 6 and iPhone 6 Plus models, which came out in September 2014.
Part of the problem, according to a July 6 report by The Wall Street Journal, is that Samsung apparently underestimated what turned out to be higher demand for the Galaxy S6 Edge phone, with its screen that wraps around both sides of the smartphone, and planned for larger supplies of the standard S6 model over the S6 Edge, the news story reported.
“According to a person familiar with the matter, the company initially expected to sell four Galaxy S6 smartphones for each Galaxy S6 Edge that it sold, and set up its production facilities accordingly,” The Journal reported. “Instead, demand was much likely closer to even for the two devices, the person said. The company ended up having more white S6 phones than it could sell and not enough S6 Edge handsets, which hurt sales, revenue and profit figures.
Samsung is working now to build as many S6 Edge phones as it needs, with a source telling The Journal that this could help lift the company’s financial results in the third or fourth quarters of the year. Whether that will be adequate or too late is the next issue that the company will have to grapple with as it continues to work to bolster sales and profits.
Richard Windsor, an analyst with Edison Investment Research, told eWEEK in an emailed statement that it was logical that Samsung expected to sell more standard S6 phones than S6 Edge devices because earlier Edge devices had not sold as well. The disappointing results were due in part to that miscalculation, he wrote.
“This is a common occurrence in the handset market where demand is notoriously difficult to predict and hence this is no fault of Samsung’s management,” wrote Windsor. “The net result is that overall shipments of the S6 have not been as good as hoped causing the revenue miss reported.”
On the other hand, wrote Windsor, Samsung’s margins have held up well and he expects the company’s handset business will be able to maintain or even improve on its 10.6 percent margins seen in the first quarter of 2015. “As long as market share and margins can be held stable, the way will be clear for [the company’s] Device Solutions—memory, panels and LSI [division] to generate profit growth for the group going forward.”
Still, the recovery at Samsung is likely going to take a while, wrote Windsor. “However, this does not mean that good times are here again as Device Solutions is not about to explode into rapid growth. Hence, we think that low single-digit earnings growth is likely for at least the next couple of years.”
Samsung will release its final figures for the second quarter in late July. The estimates show the company heading for its seventh straight quarterly profit decline.
Samsung has been hit hard in recent years by lower sales of its mobile phones, which have been losing ground to cheaper phones from Chinese handset makers, and from stiffer competition from Apple and its latest iPhone 6 smartphones and from other competitors. Much of the sales slump likely was due to consumers who were waiting to see the then-new iPhones and Samsung’s own replacement for its earlier flagship Galaxy S5 phone.
Samsung Estimated Q2 Profit, Revenue Fall Again as Troubles Persist
The company had been hoping for a big financial turnaround after the release of the new Galaxy S6 and S6 Edge, which went on sale April 10 after almost two months of intense build-up in the marketplace. The new Galaxy S6 and Galaxy S6 Edge smartphones attracted plenty of consumer interest and so many preorders that the company quickly boosted its production targets for the new devices.
Instead of producing 7 million Galaxy S6 and S6 Edge devices in April, Samsung has placed orders for an extra 1 million units, boosting its order to 8 million smartphones for the month, according to earlier reports. Samsung had previously said it had ordered 5 million of the smartphones for March, bringing the total production for the two months to 13 million phones. Those production increases, however, didn’t include enough S6 Edge phones, which are in higher demand.
In late April, Samsung reported a $4.63 billion net profit for the first quarter of 2015, which was down 39 percent from the same quarter one year prior, when the company had a $7.04 billion net profit. For the South Korean smartphone and electronics maker, it continues to be a disappointing trend downward that’s been repeated often over the last several years.
Samsung’s first-quarter revenue of $43.8 billion was down from $49.9 billion for the same quarter one year prior. Operating profit for the first quarter dropped about 30 percent to $5.64 billion from $7.8 billion in the same quarter one year prior.
Samsung does not break down earnings figures for its various divisions so figures for its mobile device division were not available separately.
At the time, Samsung released a statement with its earnings report that said it expected second-quarter sales to rebound and earnings to improve led by increased sales of its flagship Galaxy S6 and S6 Edge smartphones. The company is still waiting to meet those expectations.