Samsung operating profits collapse

Samsung has seen its profits hit a two-year low, hurt by both a strong won and increased competition from Chinese manufacturers.

People walking past a Samsung advert
Source: Bloomberg

The operating profit of the company has fallen by 24% in the second quarter, its sales have shrunk by 9.5% and the South Korean won has increased in strength by 5%.

It should be noted that the company believes it will see an upturn in fortunes in the third quarter with the launch of its newest Galaxy Note smartphone and a range of budget smartphones tailored for the Asian markets. Samsung has sold 78 million units in the last quarter, down from the 87 million in first quarter so it will need to work hard to regain momentum.

Western institutional investors have become increasingly restless with the company’s hording of $41 billion in cash, and there have been increasing calls for the company to add to its existing dividend payments and embark on a share buyback scheme. There remain lingering questions over the company’s leadership, with the current chairman still recovering from a heart attack he suffered in May.

Apple, the previous market leaders until Samsung overtook them, will be reporting in a couple of weeks, and it will be interesting to see how beneficial the current issues Samsung has faced with currency exposure have been to the US competitor.

IG clients should be conscious that our quote is a Global Depositary Receipt (GDR). The shares price has now fallen below the 200,100 and the 50-day moving average is edging ever closer to oversold territory on the relative strength index. Any change to the company’s dividend policy or share buyback is likely to drive the price.

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