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Samsung sales and profits down despite Galaxy S5 launch

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Rest of 2014 will be "a challenge" as second quarter disappoints

Samsung Electronics has released its financial results for the second quarter of 2014, showing the first drop in net profit in three years for the Korean electronics giant, and a slowdown in its smartphone sales. The company announced it had made a net profit of 6.25 trillion won ($6.1 billion), down from 7.77 trillion won ($7.58 billion) last year. It also recorded an operating profit of 7.19 trillion won ($7.02 billion) in the period — a 15 percent drop from last quarter — on revenues of 52.35 trillion won ($51.02 billion). The new figures mean Samsung's operating profit has dropped almost 25 percent from the same quarter last year, falling from 9.53 trillion won ($9.27 billion) in the second quarter of 2013.

Samsung's operating profit dropped 25 percent from last year

The company's mobile business provided most of its money as usual, posting an operating profit of 4.42 trillion won ($4.31 billion) on 28.45 trillion won ($27.72 billion) in revenue. Samsung said that while the demand for smartphones remained the same as in the previous quarter, its smartphone and tablet sales decreased. The company blamed "traditionally low" second quarter market demand for part of the drop in sales, despite early indications that the launch of the Galaxy S5 would help Samsung regain market momentum. In May, Samsung said that the phone, which launched in April, was outselling its predecessor by 10 percent.

The company also pointed to the appreciation of its home country's currency as a reason for the drop in its operating profits, pinning 500 billion won ($488 million) in missed revenues on the foreign exchange market, and said that pre-existing inventories in European markets made selling its products tougher. In response, Samsung said it had to boost marketing expenditure.

Samsung says the second half of 2014 will be "a challenge." While seasonal purchasing swings mean its consumer electronics wing can expect to see higher profits next quarter, and the release of new mobile devices should drive purchases, the company notes that the increasingly competitive global smartphone and tablet market makes its prospects for growth uncertain. While the Korean company is still the global leader in smartphone shipments, Chinese manufacturers such as Huawei — which almost doubled its number of phone shipments between 2013 and 2014 from 10.4 million to 20.3 million — are eating away at its market share.

The company says the rollout of new mobile models later this year is expected to increase its smartphone and tablet sales, but it should be noted that these latest figures come in the same quarter that Samsung released its Galaxy Note 8 tablet, and its latest flagship smartphone, the Galaxy S5. In the same quarter last year, Samsung posted record profits after launching the S5's predecessor, the Galaxy S4. The company may already be reacting to its backslide — The Wall Street Journal reports that hundreds of Samsung senior managers have taken a 25 percent cut to their bonuses for the first half of the year in response to the company's shifting mobile fortunes.