Samsung shares fall as Galaxy S4 firm fails to hit earnings expectations

Stop us if you've heard this one: Company releases line of products that catapult it to the top of its market. Company sits on top of the world for the better part of a year, when it begins cutting forecasts and disappointing analysts. The company's stock price drops as many pundits begin to ponder whether the market itself is getting a wee bit saturated with similar products.

If you guessed the company was Samsung, you'd be right. The company's recent earnings miss dropped its shares 3.8 per cent, after it announced an operating income of 9.5 trillion won (£5.6 billion), according to Bloomberg.

While that sounds like a considerable amount on paper – especially given that the company reported an operating profit of just 6.46 trillion won last year – the figure still missed the expectations of analysts that were hoping for a number above 10 billion won.

"Samsung's got diversified businesses. When one business lags, it's got others outperforming and propping up the overall profit," Jung Sang-jin, form Dongbu Asset Management, said in an interview with Reuters.

"The component business is widely expected to pick up the slack in the second half when smartphones slow, but now worries are also mounting that the component business' recovery could be short-lived," he added.

So, what's responsible for the miss? First, there's the general state of the smartphone market. Numerous analysts believe that the high-end smartphone market is becoming saturated and fewer consumers are making purchasing decisions based on a device's specifications versus its price.

There's also thought that the low-end smartphone market is the next critical battleground for a growing field of mobile manufacturers. However, this has typically been an area where Samsung has not been quite so successful. A growing demand from China for low-cost smartphones puts a little pain on Samsung's profit margins.

Another key factor in Samsung's earning miss is the considerable amount the company spent on a marketing campaign for its Galaxy S4 smartphone, launched earlier this year, as well as the 1,400 or so specialised Samsung stores the company is opening inside of Best Buy retail stores. According to Reuters, Samsung spent more to market its phones in 2012 than it spent on actual research and development.

Still, some analysts don't see Samsung's earnings as buying opportunity. "At current valuations, the market is assuming the mobile business will destroy value," said Mark Newman, of Sanford C. Bernstein, in a note to investors. "We believe Samsung is cheaper than ever."

And, as the New York Times noted, Samsung's smartphone sales could falter a little bit and still offer investors a bit of a silver lining. After all, the company's semiconductor line helps to power the very devices that compete against its smartphones – and memory prices are on the up.