Samsung shares fall despite forecasting record profits

Shares in Samsung Electronics fell on Friday, despite the company

forecasting it would report a record quarterly profit for the second

quarter of 9.5tn won (£5.5bn), up 47% on a year ago.



But the news fell short of analysts' expectations and the shares fell

by nearly 4% on the Seoul stock market.



The company was preparing to announce 20m shipments of its new Galaxy

S4 phone, two months after its release but analysts are increasingly

concerned that Samsung, like its principal smartphone rival Apple, is

facing saturated markets in the developed world as ownership passes

50% in many countries.



Average smartphone ownership in the US and Europe is heading towards

60%, leaving few new buyers to expand the business at the high end.

Mobile network operators are also cutting subsidies for phones, making

high-end phones more expensive.



South Korean networks cut subsidies for new phones this year,

contributing to weaker Galaxy S4 sales in Samsung's home market and

higher marketing spending for the handset maker, said Seo Won-seok, an

analyst at Korea Investment & Securities.



China is the fastest growth area in smartphones, but at low prices

with highly competitive markets. Samsung has been releasing cut-down

versions of the S4 to try to protect its market share from rivals such

as ZTE and Huawei.



The saturation at the top end of the market seemed to be reflected in

Samsung's Galaxy S4 figures. Though shipments of the S4 in the first

month after release were twice as high as for last year's Galaxy S3,

the time it took to reach the 20m mark suggested shipments were

slowing to a rise of only 60%.



The company still dominates the smartphone and "featurephone"

business, shipping about half of all smartphones and a quarter of all

mobile phones worldwide. It is the biggest seller of phones running

Google's Android software, taking about 95% of all profits in the

Android space.



Samsung said total sales in its electronics division had grown 20% to

57tn won (£33.2bn). It will announce its full audited quarterly

results this month.



Analysts suggested that high marketing costs – which exceeded those

for research and development for the first time in three years – may

have hit the profit figure, despite the strong first-month sales.



"Because of the marketing costs, the telecommunications business was

probably weaker than expected," said CW Chung, an analyst at Nomura

Financial Investment in Seoul. "Semiconductor and other businesses

seem to have improved from the previous quarter."



Analysts cut their figures last month for the total numbers of S4

phones Samsung will ship this year from 80m to 60m.



"Apple is suffering from iPhone fatigue, while Samsung is suffering

from Galaxy fatigue," Neil Mawston, executive director of Strategy

Analytics, told Bloomberg before the financial announcement.



Samsung is increasingly reliant on its mobile business for growth.

Samsung's division making and selling mobile phones, tablet computers

and cameras contributed 75% of its operating income in the first

quarter of this year. Analysts surveyed by FactSet said 60% of

Samsung's second-quarter sales probably came from the mobile business.