Samsung forecasts steep drop in Q4 earnings

South Korea's Samsung said today it expected a steep drop in its operating profit for the fourth quarter of 2013, as slowing sales of high-end smartphones and a strong won hit the world's top technology firm.

The company forecast an operating profit of $7.8 billion for October-December, down 18.3 per cent from the third quarter and 6.1 per cent lower than a year earlier.

Sales will likely reach 59 trillion won, down 0.1 per cent from the third quarter but up 5.24 per cent from a year earlier, according to earnings guidance released by the firm.

It would mark the first on-quarter drop in Samsung's operating profit since the first three months of 2013 and would be the lowest figure since July-September 2012. It is also the first year-on-year drop in the firm's operating profit for more than two years.

Samsung - the world's top maker of mobile phones and TVs - posted record net profits for the first three quarters of last year, largely fuelled by robust sales of its popular smartphones. It did not disclose net profit estimates for the fourth quarter.

The latest earnings guidance showed the firm's annual sales and operating profit for 2013 hit record highs of 228.4 trillion won and 36.7 trillion won.

But the company - which has dethroned US rival Apple as the world's top smartphone maker in the past two years - saw sales of high-end devices slow as the market becomes increasingly saturated.

"Samsung has constantly expanded sales, but now the (handset) market demand appears to have reached a limit," said Kim Ji-Woong, an analyst at E* trade Securities in Seoul.

The earnings guidance relates to overall sales and profits for the entire company, which produces products from memory chips to TVs, but operating profit at the firm's mobile unit is likely to have dropped significantly, Kim warned.

However, Lee Sun-Tae, an analyst at NH Investment & Securities, said profits had been hit by one-off spending on marketing and bonuses for workers - estimated to be worth at least 700 billion won - to mark the 20th anniversary of its key management principles.

"Samsung spent hugely for marketing costs to clear inventory during the year-end shopping season," he said.

"I see big potential for improved profits in the first quarter of this year once such costs decrease," Lee added, saying the firm's memory chip unit also showed signs of improvement.

Intensifying competition from budget handset makers has raised questions over whether Samsung can sustain its ever-soaring profits - largely fuelled by its mobile unit.

Consumers gave its much-heralded Galaxy Gear smartwatch, launched in September, a relatively cool reception.

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