Samsung predicts massive profit decline, blames slumping smartphone sales

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South Korean electronics giant Samsung on Tuesday warned investors that it is set to announce a quarterly profit decline of as much as 26 percent year-over-year, citing weak smartphone demand and increased competition in China and Europe as the shortfall's primary drivers.

The company expects to have added between 7 trillion and 7.4 trillion Won ($6.9 billion to $7.3 billion) to its coffers in the second quarter, compared with 9.5 trillion Won one year ago. It will mark Samsung's third consecutive quarter of sliding profits.

Along with the relative strength of the Won against other world currencies, Samsung specifically cited trouble in its IT and mobile communications division — the unit that handles the company's handset and tablet business — as the culprit.

Samsung was forced to spend "somewhat aggressively" on marketing in order to clear backed-up inventory of mid-tier and low-end devices as it feels the squeeze from commodity Android vendors. That position is not likely to improve in the near future, especially as new initiatives like Google's Android One program expand the availability of ultra-low-cost Android devices with more than modest technical specifications.

There is worry among industry watchers that Samsung's flagship devices — including the new Galaxy S5 — could be suffering from similar channel-stuffing issues, according to the Wall Street Journal. Combined with Samsung's assertion that demand for its 5-inch and 6-inch devices cannibalized tablet sales, the numbers paint a bleak picture of the company's future ahead of arch rival Apple's hotly-anticipated release of competing 4.7-inch and 5.5-inch next-generation iPhones this fall.

The handset division's troubles also dragged other Samsung business units down, the company said. Samsung's System LSI and display businesses — which supply both Samsung and rivals, including Apple, with system components — saw profits fall amid lowered shipments.


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