UPDATED 04:37 EDT / JULY 07 2015

NEWS

Samsung to post Q2 profit decline on back of incorrect Galaxy S6 sales expectations

Samsung Electronics Co. on Tuesday forecast a second-quarter profit decline following a combination of lower than expected demand for its Galaxy S6 smartphone and shortages of its Galaxy S6 Edge model.

The South Korean technology giant estimated its second-quarter profit at 6.9 trillion won ($6.1 billion), a decline of four percent over the year-ago quarter. Although the estimation is a 15 percent increase over the first quarter profits, it misses the 7.2 trillion won ($6.38 billion) average of 33 analyst estimates compiled by Bloomberg.

Estimated second quarter sales fell eight percent from the year-ago quarter to 48 trillion won ($42.5 billion), falling short of analysts’ forecasts of 52.8 trillion won ($46.6 billion). Samsung will release its audited second quarter results later in July.

Despite the launch of the company’s new flagship Galaxy S6 and Galaxy S6 Edge smartphones falling in the second quarter, this marks the seventh consecutive quarterly profit decline for Samsung.

According to The Wall Street Journal, citing sources familiar with Samsung’s situation, the smartphone make severely overestimated demand for the Galaxy S6 while underestimating how popular the Galaxy S6 Edge would be.

Originally expected to outsell the Galaxy S6 Edge four-to-one, demand for the Galaxy S6 turned out to be about even. This led to a shortage of Galaxy S6 Edge handsets while Samsung was stuck with Galaxy S6 devices it could not sell fast enough.

“The failure to manage the initial shipment for the Galaxy S6 series is the primary reason” for disappointing sales, said Lee Ka-keun, an analyst at KB Investment & Securities Co.

Samsung also faced increased competition from Apple’s iPhones at the high-end of the market while Chinese vendors such as Xiaomi and Huawei continue to dominate the low-end of the market.

The company did not break out earnings estimates by business unit on Tuesday, but analysts estimate that operating income from the mobile division likely declined 28 percent to 3.2 trillion won ($2.83 billion) on sales of 28.7 trillion won ($25.3 billion).

Analyst firm Nomura Securities estimates Samsung’s smartphone shipments during the second quarter at 75 million units, down 11 percent from previous estimates.

Although Samsung claims it has resolved the shortage of Galaxy S6 Edge devices, analysts do not expect it to overtake rival Apple this year – especially taking into account the upcoming launch of Apple’s next iPhone, expected in September.

Image credit: Kārlis Dambrāns via Flickr

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