Samsung expects 60 percent drop in profit for Q3 2014

The electronics giant blames higher marketing costs and lower handset sales prices for its fourth straight quarterly drop.

Samsung expects to record a rocky third quarter. CNET

Three months after warning that the second half of 2014 would "remain a challenge," Samsung announced Monday it expects a decline of nearly 60 percent in its operating profit for the third quarter of 2014, its fourth straight quarterly drop.

The South Korean electronics giant said it expects to record an operating profit of 4.1 trillion won ($3.8 billion) for the quarter ended September 30, a 59.7 percent drop from the year-ago quarter. The company also said it expects sales for the quarter to come in around 47 trillion won, a 20 percent decline.

The guidance, released before its full earnings report later this month, did not provide details of divisional earnings, but for the second quarter in a row, Samsung released "reference materials" to address concerns about the current state of the company.

Smartphone shipments, which typically account for two-thirds of the Samsung's operating profit, increased marginally in the quarter, but margins were hurt by higher marketing costs and lower selling prices for the company's high-end handsets, the company said.

Analysts had broadly expected the third quarter to be a tough one for Samsung -- with the company likely posting its biggest declines in about five years. They projected Samsung's operating profit would tumble about 42 percent to $5.9 trillion won ($5.52 billion) while its sales were expected to drop 14 percent to $50.9 trillion won ($47.6 billion), according to Thomson Reuters.

"Q3 earnings is expected to be weak, brought down by poor performance in smartphones, with memory remaining the only strong point," noted Sanford Bernstein analyst Mark Newman.

Samsung needs a jolt. The company -- the world's biggest smartphone vendor by a wide margin -- is being pressured in emerging markets by low-cost handset vendors such as Xiaomi and Huawei. It's also facing stiff competition from Apple in the market for pricey, high-end smartphones, especially since Apple in September launched two bigger screen iPhones.

Of the five largest smartphone vendors in the world, Samsung was the only one that saw shipments fall year-over-year in the second quarter, according to IDC. And Fitch Ratings, a major credit rating agency in the US, predicted in mid-August that Samsung's global smartphone market share would fall to 25 percent in 2015 from 31 percent this year.

Samsung admitted during its second-quarter earnings report in July that excess inventory in China and Europe caused device sales to slide and increased the amount it spent on marketing to counteract the issue. It also noted that its earnings were hurt by increased price competition, and it was hard to sell its older 3G phones in China as the country shifts to 4G LTE technology. Those factors contributed to a 30 percent drop in profits in Samsung's mobile division in the June quarter and caused the company to warn that the second half of 2014 would remain a challenge.

CNET's Shara Tibken contributed to this report.

Featured Video