Samsung Elec's lower Q1 estimate highlights smartphone challenges

SEOUL Tue Apr 8, 2014 8:25am IST

A woman looks at advertisements promoting Samsung Electronics' Galaxy Note 3 smartphone at the company's headquarters in Seoul April 7, 2014. REUTERS/Kim Hong-ji

A woman looks at advertisements promoting Samsung Electronics' Galaxy Note 3 smartphone at the company's headquarters in Seoul April 7, 2014.

Credit: Reuters/Kim Hong-ji

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SEOUL (Reuters) - Samsung Electronics Co Ltd(005930.KS) on Tuesday said it is on track to post its second straight quarter of profit decline, as slowing smartphone sales growth continued to weigh on earnings.

The South Korean tech giant estimated that its January-March operating profit fell by 4.3 percent to 8.4 trillion won, slightly below an average forecast of 8.5 trillion won by 40 analysts polled by Thomson Reuters I/B/E/S.

The world's biggest smartphone maker is counting on the fifth version of its flagship Galaxy S smartphone, which goes on sale globally from Friday, to right the ship and prove the firm's staying power as a mobile innovator.

But the Galaxy S5 has already got off to a weak start at home, with its South Korean debut marred by a temporary ban on mobile carriers selling handsets and criticism that it lacks eye-catching new features.

Underscoring the challenges, Samsung priced the S5 about 10 percent cheaper than the S4 even though main rival Apple Inc APPL.O is not widely expected to update its line-up until September. It also dialed back on marketing glitz to keep margins stable.

Analysts said the company's efforts to rein in component costs and make products that appeal to a wider audience will be crucial as Samsung braces for what could be its first annual profit decline in three years.

"What Samsung needs to do this year for additional growth are things like cost reduction and reducing marketing costs," HMC Investment and Securities analyst Greg Roh said.

"In some sense, Samsung has no way to prevent a decline in its earnings without improving internal efficiencies."

Samsung estimated its first-quarter sales at 53 trillion won, compared with a market forecast of 54.58 trillion won. Full quarterly results are likely to be announced by April 25.

Shares in Samsung closed up 1.2 percent on Monday prior to the earnings estimate announcement.

The stock is nearly 12 percent off the record high hit in January last year, weighed by worries over high-end market saturation and competition from cheap Chinese rivals.

(Reporting by Se Young Lee; Editing by Stephen Coates)

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