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Samsung Releases Supplement to Earnings Statement Addressing 24% Profit Decrease

July 8, 2014 - Written By Jeremiah Nelson

 

Samsung’s quarterly earnings are not looking pretty. They just announced their quarterly earnings and profits are down 24% year-over-year. To combat the scare that this could cause, they are providing companion “reference material” along with the report to try to explain their reasons for coming up short last quarter. The document is only one page long. Samsung Electronics is trying to explain why their profits were down by 24%. Or they’re making excuses for what many consider the stagnation that has overtaken their mobile division.

There a few areas that the paper points to for the dramatic decrease in earnings. These include pointing out that the Korean won is heavily inflated against the American dollar and other currencies. The company also drastically over delivered smartphones in Europe and China, leading to a surplus. In both China and Europe, competitors are offering similarly specced devices at much lower price points, so Samsung Electronics is suffering from heavy competition. China as a country is gearing up for a large 4G LTE rollout, and Samsung says this is translating into consumers saving their pennies for new 4G phones and not buying Samsung 3G devices. Samsung also spent a ton more on marketing last quarter than they did this time last year. The company points to their phablet sales as a reason for slow tablet sales, too.

The reasoning appears legitimate, and investors seem steadied. Samsung stock is up slightly on the news, even though their overall revenue is down. The company released the full statement and we’ve got it below for you to read. What do you think? Is Samsung making excuses? What do they need to change in order to turn things around?

Here’s the Samsung earnings supplemental statement:

Samsung Electronics 2Q Earnings Guidance: Reference Material

The earnings forecast is the result of the strong Korean currency throughout the second quarter as it appreciated against the dollar, euro and most emerging market currencies.

The company also witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets. And this led to higher inventories for the medium- and low-end smartphones.

The second quarter is a seasonally weak period for smartphone demand in China. Samsung also saw an increase in inventory due to price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market. Weaker demand in the second quarter also led to increased inventory in Europe, where Samsung has a 40 percent market share approximately.

In the case of tablets, sales were sluggish due to a longer replacement cycle than that of smartphones, which is usually between two to three years. In addition, higher shipments of 5-to-6 inch large screen smartphones replaced demands for 7-to-8 inch tablets.

With the release of new smartphone devices in the second quarter, Samsung launched various promotions to reduce existing inventories in sales channels and this increased the company’s marketing expenditure compared to the previous quarter.

The weak demand for smartphones also affected the System LSI and the display businesses that provide key components and screen technologies.

The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter.

Samsung expects stronger smartphone sales and this will have a positive impact on the company’s display panel businesses. In the memory business, following stable market conditions in the first half, seasonal increase in demand in the third quarter is expected to drive stronger earnings growth.

Samsung will continue to expand its B2B businesses and looks forward to exceeding consumers’ expectations by offering the most innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices.