Samsung has posted its seventh consecutive decline in operating profits, estimating that second-quarter operating profit declined 4% from the year-ago to 6.9 trillion won.
The drop, however, was better than the first quarter’s 30% decline. The company also forecast that its second-quarter revenue likely dropped 8.3% to 48 trillion won. The quarter ends June 30, and the company plans to announce its full quarterly results in late July. In the first quarter, the company’s net profit fell 39% to 4.63 trillionwon on a revenue decline of 12.2% to 47.12 trillion won.
While Samsung didn’t release results by segment, the quarter includes the April launch of the company’s flagship Galaxy S6 and S6 edge smartphones. It appears that Samsung underestimated demand for the edge and overestimated demand for the S6, according to global reports.
Glut of Galaxy S6
In a report in the Wall Street Journal (WSJ), Samsung initially expected to sell four Galaxy S6 smartphones for each Galaxy S6 Edge sold, and set up its production facilities accordingly. Instead, demand was much likely closer to even for the two devices.
It appears that this has led to a glut of unsold Galaxy S6 devices, particularly white-colored devices, and not enough Galaxy S6 Edge smartphones.
Since April, the company has reconfigured its manufacturing operations, which are concentrated in Vietnam, to be able to produce as many Galaxy S6 Edge devices as the market demands.
For the second quarter, analysts estimate the company shipped 71 million to 76 million smartphones, with the two Galaxy S6 phones accounting for slightly more than 20% of the shipments. This compares with an estimated 74.5 million units shipped during the year-ago period, according to Strategy Analytics.
It seems Samsung expected its years of robust earnings growth on the back of the popularity of its Galaxy S smartphones to continue unabated. However, Samsung’s mobile profits first began falling last year after the Galaxy S5 failed to impress consumers. The company also saw its market share eroded by a number of low-cost competitors from China and India, a threat that may continue to challenge the company.
Samsung’s shares have fallen 17% since the April 10 launch of the Galaxy S6 and the S6 Edge.