Samsung profit guidance shows failure in mobile business

Samsung Electronics is slowly recovering, but it’s still not there yet, according to its second quarter earnings guidance.

The company estimated its operating profit at 6.9 trillion won (£3.95bn) during the second quarter, it said on Tuesday. Analysts expected somewhat more.

According to a Thomson Reuters I/B/E/S survey poll, analysts expected the April – June operating profits at 7.2 trillion won (£4.09bn), the same as the year before.

“It doesn’t matter how competitive you are if overall demand is weak,” HMC Investment analyst Greg Roh said for The Financial Express. “Third-quarter earnings will likely be similar to the second quarter.”

Revenue is expected to total 48 trillion won in the second quarter, underperforming forecasts for 53.4 trillion won.

Analysts say that Samsung’s lower-than-expected earnings guidance is caused by the continued weakness in the mobile business.

"Samsung's smartphone division is performing really poorly and its semiconductor business isn't outperforming because weak overall demand for handsets is limiting semiconductor demand," Tom Kang, research director at Counterpoint Research told CNBC.

Samsung has had a fairly high demand for its latest flagship smartphone, the Galaxy S6, but failure to produce enough curved screens to meet the demand has likely hurt the earnings. Even though the company said it had fixed the problem, now might be too little, too late.

After an initial spike in demand following its launch, "our monthly tracking shows that Galaxy S6 sales are falling off," said Kang.

"There were initial supply issues for the edge model, but now I think Samsung has missed its window of opportunity, as it's not that popular among consumers at this point," he said, adding that the price tag of the phone would need to be lowered in order to regenerate interest from potential buyers.