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Samsung posts Q2 2014 earnings report - mobile division as poor as anticipated

After weeks of preemptive damage control, Samsung has published its earnings report for Q2 2014. The results show a poor performance for the mobile division, whilst the rest of the company shows growth.
August 4, 2014

After weeks of preemptive damage control, Samsung has posted its official earnings results for the second quarter of the year. Much to everyone’s expectations, the smartphone giant experienced a decline in sales and profit last quarter.

Samsung Q2 2014 profit at a glance
Total sales revenue for the second quarter of 2014 reached KRW 52.35 trillion (USD 50.67 billion), down 2 percent from the Q1 2014 figure of KRW 53.68 trillion (USD 51.96 billion), and down 9 percent compared with the same quarter last year.

Operating profits took a larger hit, with the Q2 2014 figure coming in at KRW 7.19 trillion (USD 6.96 billion), down 15 percent compared with Q1 2014 and down 24.5 percent compared with Q2 2013.

The tech giant expected to see a decline in profits of 25 percent, making their predicted results spot on. Samsung and investors have been anticipating a worse than usual Q2 earnings result for the past month, which led to managers from Samsung’s Mobile Communications division handing back bonuses in preparation of the results.

Looking specifically at the IT & Mobile communications division, the group responsible for smartphone development, sales revenue and profits were hit much harder.

Samsung sales and profit Q2 2014

Quarter on quarter mobile sales revenue declined by 12 percent, from KRW 27.51 trillion (USD 26.63 billion) to KRW 31.36 trillion (USD 30.35 billion), and fell by a 21 percent compared with revenue generated in Q2 2013. Profits from the Mobile Communications division posted the poorest performance out of the entire company, with operating profits coming in at KRW 4.42 trillion (USD 4.28 billion), a decline of 31.2 percent compared with the previous quarter, and 29.6 percent year on year.

The second quarter of the year is usually a seasonal low point for Samsung, but additional factors seem to have made this quarter particularly troublesome for the smartphone giant. According to Samsung, tablet sales were particularly low this quarter, and high inventory levels, particularly in the EU, led to an overall decline in shipments and revenue. This analysis is backed up by research demonstrating that Samsung experienced particularly poor shipments last quarter.

Smartphone Shipments Q2 2014
Samsung smartphone shipments suffered a steep decline in Q2 2014, leading to a fall in revenue.

Mid and low-end shipments were particularly affected, according to Samsung, due in part to intensified price competition from Chinese manufacturers. Inventory costs related to Galaxy S5 sales were also a contributing factor to the decline in operating profits.

Samsung’s consumer electronics and semiconductor businesses fair a little better. Operating profits for the consumer electronics division were up by 300 percent, and whilst semiconductor profits were down slightly year on year,  sales and profits were up compared with last quarter. It is also important to remember that all of Samsung’s business divisions continue to remain profitable.

Samsung remains optimistic that third and fourth quarter sales and profits for its mobile business will pick back up. Perhaps upcoming handsets, like the Galaxy Note 4 or rumoured Galaxy Alpha, will help bolster Samsung’s mobile business in the second half of the year.