* Q2 operating profit 7.2 trln won vs 7.2 trln won guidance
* Q2 smartphone business profit weakest since Q2 2012
* Samsung downbeat on mobile division profitability in Q3
* Shares fall sharply on future growth worries
(Updates with comments from company, analyst and fund manager;
By Se Young Lee
SEOUL, July 31 Samsung Electronics Co Ltd.
on Thursday reported its worst quarterly profit in
two years and flagged uncertain earnings prospects for its key
handset business, fuelling worries about its ability to return
The downbeat guidance, as well as Samsung's decision to keep
its interim dividend unchanged from last year, put the shares of
South Korea's biggest company by market value on track for their
worst daily percentage decline in nearly eight months.
Samsung expects July-September handset shipments to pick up
by 10 percent from the previous quarter and said it planned to
release a new premium smartphone employing a new design and
material, underscoring efforts by the world's largest smartphone
maker to regroup.
With its flagship Galaxy S5 smartphone outsold by Apple
Inc's iPhone 5S in May and its cheaper devices feeling
the squeeze from Chinese rivals like Xiaomi, Samsung also vowed
to revamp its mid-to-low-tier product lineup with more
aggressive pricing and a focus on a smaller set of products.
Those plans were mostly in line with market expectations and
Samsung remained downbeat about its third-quarter prospects,
with its mobile division expecting a decline in average sales
price in the current quarter from the April-June period.
"Considering intensifying competition of price and
specifications as well as the release of new competing models,
it is difficult to expect earnings to improve from the second
quarter," Senior Vice President Kim Hyun-joon said about the
mobile business during a conference call with analysts.
PROFIT SLIDE CONTINUES
For April-June, Samsung said operating profit fell 24.6
percent annually to 7.2 trillion won ($7.03 billion), matching
its guidance. It was the third straight quarter of profit
decline and its weakest result since the second quarter of 2012.
Profit for the mobile division fell to 4.42 trillion won
from 6.28 trillion won a year ago, also the lowest in two years.
Samsung warned that business conditions for the second half
would remain challenging, deepening investor concerns about its
prospects. Samsung shares were down 3.8 percent as of 0432 GMT,
underperforming the wider market's 0.5 percent decline.
"There needed to be a positive guidance for third-quarter
results but it looks like the company is saying the outlook
isn't too bright aside from its semiconductor business," said
IBK Asset Management fund manager Kim Hyun-su, adding that he
would hold off on buying more Samsung shares until there was a
Samsung's mobile division executives returned a quarter of
their first-half bonuses and have downgraded to economy seats
for shorter flights, evidence the South Korean tech giant is
tightening its belt as it tries to bounce back.
But analysts say the pressure on the business to turn
momentum around will persist and could lead to a reshuffle if
the current management could not deliver.
Researcher IDC said on Wednesday that Samsung's
second-quarter global smartphone market share slipped to 25.2
percent from 32.3 percent a year ago, underscoring its troubles.
"Nothing on the smartphone end has particularly changed, and
there likely won't be any change in the story aside from effects
of cost reduction," said IM Investment analyst Lee Min-hee.
Some analysts say Samsung should introduce curved displays
or metal casings rather than much-criticised plastic for its
premium products. Some have suggested a whole new brand to
separate its high-end products from cheaper devices.
Samsung finds itself facing the first annual profit decline
in three years just as Apple prepares to launch a larger iPhone
that would challenge the South Korean giant on its home turf of
out-sized, high-end devices.
The weak second-quarter results will put the spotlight on
the next Galaxy Note handset, expected to be launched in
September. The company once again hinted at a significant change
in design for the device but offered no specifics on Thursday.
"They'll have to make sure that the Note 4 isn't a flop,"
Counterpoint analyst Tom Kang said before Samsung's earnings
Samsung's chips business reported a profit of 1.86 trillion
won, in line with solid results for rival SK Hynix Inc
, as tight supply for DRAM memory chips for personal
computers and servers boosted the bottom line.
Samsung's guidance on its memory business was bullish,
tipping its 2014 shipment growth for both DRAM and NAND memory
chips to outpace the broader market.
Samsung said it planned 24 trillion won in capital
expenditure this year, in line with 2013, with 14.4 trillion won
of that for its chips business.
($1 = 1023.9000 Korean Won)
(Additional reporting by Kahyun Yang; Editing by Stephen