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Samsung expecting a massive drop in operating profit this quarter

Samsung expecting a massive drop in operating profit this quarter


Operating profits down 60 percent from one year ago

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Last quarter, Samsung warned that the record-breaking earnings the company had been posting might not last forever, and now the company is reiterating that message. Today, Samsung issued guidance for its forthcoming Q3 2014 earnings, telling investors that it expected operating profits of 4.1 trillion won ($3.8 billion) for the quarter, down a hefty 60 percent from the $10.6 trillion won operating profit that the company booked in Q3 2013. Consolidated revenues of approximately 47 trillion won also represented a 20 percent decline over the previous year's third quarter total of 59.1 trillion.

Analysts had been predicting a big blow to Samsung's bottom line due to continued pressure on the high end from Apple as well as major market share challenges from Chinese manufacturers. Bloomberg predicted Samsung was poised for an "'Ugly' quarter as iPhones get bigger" in its pre-guidance analysis yesterday, and other experts echoed the sentiment. "We can’t really expect good news from Samsung’s mobile business this year," Seoul-based analyst Song Myung Sup told the financial news service. "The most important thing for Samsung now is to protect its fast-falling market share, especially in China," declared Claire Kim of Daishin Securities.

Sales have declined 20 percent over the previous year

Samsung reported slower profit growth last quarter and in June warned investors that it didn't see a turnaround happening any time soon, although it remained cautiously optimistic about the impact of sales from its forthcoming Galaxy Note 4 — next quarter's earnings will give us a better idea as to how Samsung's latest Note stands up to Apple's first larger-screened iPhones, particular the iPhone 6 Plus.

Of course slightly slower profit growth is far from the worst problem a company can have. To a degree, the blaring Bloomberg headline is a narrative for professional investors, not a warning to consumers. Apple has been dinged in the past for the same issues — when you're booking record profits, dips like this are entirely possible. Samsung should release its final Q3 2014 financials by the end of the month.

Ben Popper contributed to this report.

Update, 10/6/14, 10:30PM ET: Clarified drops in profit and revenue.