Samsung warns of challenging times after profits drop 15%

Samsung posted a drop in revenue and operating profit in Q214 due to a decrease in demand for smartphones and tablets.

The Korean firm posted an operating profit of 7.19 trillion won ($6.97 billion), down 15 per cent compared to the previous quarter. Revenue dropped by 2 per cent quarter-on-quarter to 52.35 trillion won ($51 billion).

Samsung did not release any figures about smartphone sales. However, the firm is believed to have shipped 74.3 million during the quarter, according to Francisco Jeronimo, research director at IDC. This number is down by 4 per cent year-on-year, but remains ahead of the 35 million iPhones shipped by Apple during the same three month period.

In a statement, Samsung claimed there were three factors explaining the results. The firm said there was reduced demand for mobile devices, it had to ramp up marketing spend to get rid of inventories and was also hit by the appreciation of the Korean currency. The latter alone resulted in Samsung losing 500 billion won in revenue due to exchange rates.

Investors expecting positive news would have been disappointed with the cautious outlook by Samsung.

The rest of 2014 will "remain a challenge" and prospects for growth "remain unclear" because of intense competition in the mobile market, the firm said in a statement.

"Samsung expects to see its sales of mobile devices increase with the rollout of flagship products and new models, but profitability may suffer due to a heated race over price and product specifications," the firm said.

The smartphone giant said it plans to launch a new large-screen flagship device, ship more mid-to-low-end models with advanced features and reduce pricing to compete with cheaper Chinese alternatives.

However, it's not all bad news. Samsung is expecting its premium curved and 4k TVs to drive profit for the consumer division in the third quarter. The firm can also call upon its cash piles of approximately $50 billion to help it through any rocky patches.