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September 20, 2017

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Bonuses, slowing phone sales lead to Samsung's first profit fall in 2 years

SEOUL--South Korea's Samsung posted its first fall in quarterly profit in two years Friday, due to a one-off bonus, a strong won and slowing sales of high-end smartphones offered by the world's largest electronics group.

Operating profit stood at 8.3 trillion won (US$7.8 billion), down 18 percent from the July-September period and a 6-percent decline from the previous year.

Net profit rose 3.7 percent year on year but slowed significantly from the third quarter's 25.6-percent gain, as healthy margins from the company's chip unit failed to offset the flagging profitability of the flagship Galaxy series of smartphones.

"Amid macroeconomic uncertainties such as a strong Korean won and increased concerns over possible quantitative easing tapering in the U.S., our earnings were lower than what the market expected," Robert Yi, head of Samsung's investor relations, said in a statement Friday.

He pointed specifically to a "negative currency impact" of 700-billion-won and a one-off 800-billion-won employee bonus to mark the 20th anniversary of a marketing strategy by Chairman Lee Kun-hee that laid the groundwork for the company's recent success.

And the company earnings statement made it clear that it expected no immediate rebound in 2014.

"For the first quarter it will be challenging for Samsung to improve its earnings as the weak seasonality of the IT industry will put pressure on demand for components and TV products," the statement said.

The latest earnings result ended the company's long run of record quarterly profits on the back of surging sales of its Galaxy products.

The mobile division posted a quarterly operating profit of 5.47 trillion won, down 2.8 percent from the third quarter.

Samsung's statement said the division's earnings were down due to seasonally increased marketing costs, as well as the one-off bonus.

The strength of the Korean won against other currencies also weighed on performance, inflicting foreign-exchange losses and making Samsung less price-competitive in the global market.

"While the number of people buying smartphones is still increasing, its getting harder for Samsung to tap new demand for its high-end handsets," said Nho Gen-chang, an analyst at HMC Investment Securities.

"So Samsung will have to lower prices to sell them, which will in turn decrease its profit margins," Nho said.

Samsung Electronics' share price, which has weakened considerably since the beginning of the year, closed up 0.6 percent Friday at 1,307,000 won.

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