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Samsung Q2: Sluggish Tablet Demand, Slowing Smartphone Sales

Both sales and profits declined from the first quarter and from the year-ago period.

Samsung said today that a number of factors dented second-quarter results, including a slowdown in smartphone sales, “sluggish” demand for tablets and a strong Korean currency.

The company said second-quarter sales were approximately 52 trillion Korean won ($51.4 billion) and operating profit was about 7.2 trillion won ($7.1 billion). That is a drop from both the prior quarter and year-ago period in both sales and profits.

Samsung sounded a more optimistic note on the coming quarter.

“The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup,” it said, adding that it doesn’t expect “any major marketing expenditure to occur in the upcoming quarter.”

Samsung typically updates its Galaxy S flagship early in the year and its second-biggest model, the Galaxy Note, in the second half of the year.

Here is Samsung’s complete statement on all the factors that affected second quarter results:

The earnings forecast is the result of the strong Korean currency throughout the second quarter as it appreciated against the dollar, euro and most emerging market currencies.

The company also witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets. And this led to higher inventories for the medium- and low-end smartphones.

The second quarter is a seasonally weak period for smartphone demand in China. Samsung also saw an increase in inventory due to price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market. Weaker demand in the second quarter also led to increased inventory in Europe, where Samsung has a 40 percent market share approximately.

In the case of tablets, sales were sluggish due to a longer replacement cycle than that of smartphones, which is usually between two to three years. In addition, higher shipments of 5-to-6 inch large screen smartphones replaced demands for 7-to-8 inch tablets.

With the release of new smartphone devices in the second quarter, Samsung launched various promotions to reduce existing inventories in sales channels and this increased the company’s marketing expenditure compared to the previous quarter.

The weak demand for smartphones also affected the System LSI and the display businesses that provide key components and screen technologies.

The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter.

Samsung expects stronger smartphone sales and this will have a positive impact on the company’s display panel businesses. In the memory business, following stable market conditions in the first half, seasonal increase in demand in the third quarter is expected to drive stronger earnings growth.

Samsung will continue to expand its B2B businesses and looks forward to exceeding consumers’ expectations by offering the most innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices.

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