Samsung Electronics share price up, estimates a 60% decline in Q3 operating profit amid tough competition

Samsung Electronics Co. Ltd reported in a regulatory filing today the largest decline in its quarterly profits in half a decade as sales in both the high and low-end smartphone segments were dented by the fierce rivalry of Apple Inc. and Chinese competitors.

The South Korean company said that its operating profit declined by 60% to KRW4.1 trillion ($3.8 billion) in the quarter ended September, down from KRW10.2 trillion a year earlier and KRW 7.2 trillion in the previous quarter. The company, however, shared that it expects its earnings over the fourth fiscal quarter to increase due to the release of new devices.

Despite the grim profit estimate, investors bought into Samsungs stock and pushed it higher through Tuesdays close amid expectations for better performance through the end of the year, with sales of the Galaxy Note 4 projected to boost fourth-quarter results. The company has been recently focused on launching new products in an attempt to beat its competitors and attract new customers with its line of larger-screen devices.

Sales slid to KRW47 trillion, compared to analysts projections for 50.3 trillion. While total smartphone sales rose in the quarter, the mobile units profit margin declined due to higher marketing expenses and lower selling prices.

According to research group IDC, Samsung sold every fourth smartphone in the second quarter, down from a 32% market share a year earlier. However, the company said that its smartphone shipments had declined only “marginally” and emphasized on the influence that margins have on increased marketing expenditure. Samsung also shared that its memory chip unit performed well over the quarter, due to a period of stronger pricing.

One of the analysts, who work at Daishin Securities Co. – Claire Kim commented on the companys results for Bloomberg: “The market thinks this is the worst profit they can expect from its mobile business, it won’t go any lower from here as more product line-ups are expected throughout this year into next year. Samsung is better positioned than any other players out there to bring out new phones with upgraded hardware features.”

Samsung Electronics Co. Ltd settled 0.96% higher on Tuesday in Seoul at KRW1 162 000 per share, valuing the company at KRW171.162 trillion. According to the Financial Times, the 40 analysts offering 12-month price targets for Samsung Electronics Co. Ltd have a median target of KRW1 500 000, with a high estimate of KRW2 200 000 and a low estimate of KRW1 050 000. The median estimate represents a 30.32% increase from the previous close of KRW1 151 000.