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Samsung's second quarter stung by soft smartphone sales

The company turns in its lowest profit growth in a year.

Sarah Tew/CNET

Samsung is feeling the pain from the smartphone slowdown.

The South Korean electronics giant on Monday reported a 6 percent rise in operating profit, its lowest profit growth in more than a year. It also logged a 4 percent increase in revenue as it benefited from continued strong demand for its memory chips, which are used in everything from phones to servers.

But its earnings were hurt by a slowdown in demand for its newest phones, the Galaxy S9 and S9 Plus, which included relatively minor tweaks from their predecessors. Revenue in Samsung's mobile division declined 22 percent in the quarter to 22.67 trillion won ($20.2 billion). The company also warned that "market condition will likely remain challenging in the second half amid pricing competition and new product launches."

The company said it would respond to the decline with the early introduction of a new Galaxy Note.

The smartphone market has been slowing down in recent quarters. It's become harder for handset vendors to make huge changes in their devices and differentiate from one another. Prices for the latest and greatest phones have actually increased at the same time US carriers have gotten rid of subsidies. All of that's meant people are waiting longer to upgrade.

Analysts had expected Samsung's smartphone sales to drop in the quarter, after reporting a slowdown in demand for its newest phones in the first quarter. The results aren't a complete surprise; the company warned in April that its second-quarter profits in its mobile business should decline sequentially "due to stagnant sales of flagship models amid weak demand and an increase in marketing expenses."

Samsung is best known as the world's biggest phone and TV maker, but it also sells more memory chips than any other company on the planet. Last year, Samsung became the world's biggest semiconductor maker in terms of revenue, beating out the long-term leader Intel

This quarter, Samsung's memory business revenue soared 33 percent to 18.5 trillion won ($16.5 billion). Its overall semiconductor business sales jumped 25 percent to 21.99 trillion won ($19.6 billion).

Samsung said profits in its display business were hurt by slow demand for flexible OLED panels and declining prices for LCD panels. (Flexible OLED displays let smartphone makers curve the screens of their devices.) The company said it expects growing demand for flexible OLED panels to drive earnings higher in the second half of the year.

Overall, Samsung reported revenue of 58.48 trillion won ($52.3 billion) and an operating profit of 14.87 trillion won ($13.3 billion).

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