Samsung expects 60% drop in Q3 profits

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Samsung on Tuesday announced it is expecting almost 60 per cent drop in operating profit for the third quarter of 2014 owing to weak smart phone sales.

The South Korean electronics giant said it expects an operating income of 4.1 trillion won ($3.8bn; £2.5bn) for the three months quarter ending September, well below analysts’ expectations of 5.2 trillion won.

Sales have been estimated at 47 trillion won, down 20.4 per cent from 2013. This would mark the fourth straight quarterly drop for the smart phone maker.

Although the guidance did not provide details of Samsung’s divisional earnings, the company released “reference materials” to address concerns about the current state of the company for the second quarter in a row.

The electronics giant in an explanatory note said while smart phone shipments, which accounts for two-third of the company’s operating profit, increased slightly, operating margin was hurt due to increased marketing expenditures and a lowered average selling price driven by reduced proportional shipments of high-end models coupled with price decreases for older smartphone models.

The company, which is facing intense competition from rival Apple and Chinese smartphone-makers Xiaomi and Lenovo, also said it is preparing new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid-to-low end smartphones to regain its dominance in the smartphone market.

In related news, Samsung on Monday announced that it would spend about $15bn on a new semiconductor plant in South Korea, to address the growing demand for memory chips. The construction will begin in the first half of next year with operations due to start in 2017.

Despite weak profit outlook, Samsung shares rose about 1.6 per cent in Seoul.