Samsung Forecasts 25% Fall In Q2 Profits

Growing mobile phone competition from China and a strong South Korean currency will knock Samsung's latest profits by a quarter, the company has revealed.

It released an explanatory note to "address market and investor concerns" alongside its estimates for the second quarter of 2014 - due to be reported later this month.

Samsung blamed its plunging operating profit forecast, to $7.1bn (£4.1bn), on the growing popularity of cheap Chinese devices which has hit its share of the global smartphone market.

The profit estimate - which is a 25% hit on the same period last year - was down 15% from the previous quarter and missed analysts' expectations though its share price, while lower, remained resilient.

Samsung said: "The company witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets.

"This led to higher inventories for the medium and low-end smartphones", it said, adding that earnings had also been hit by the appreciation of the Korean won against the dollar, euro and most emerging market currencies.

The surging won is currently running at six-year highs against the dollar, impacting South Korea's export-driven economy.

Sales in April-June were down 9.5% from a year earlier, though the electronics firm said it expected a more positive outlook in the third quarter with growing demand for 4G services in China and a much lower marketing spend expected to boost profitability.

However, the next quarter will also see the competition heat up with the expected launch of the iPhone 6 by chief high-end rival Apple (NasdaqGS: AAPL - news) .

Noh Geun-Chang, an analyst at HMC Investment Securities, told the AFP news agency: "The fundamental problem for Samsung is that the global handset market has become saturated and demand is moving toward low-priced handsets, where there is intense competition, especially from China".

At the top end, April saw the global roll-out of the latest version of its flagship Galaxy (BSE: GALAGEX.BO - news) series smartphone, the S5, which came with a free premium software bundle as Samsung sought to pull in buyers tempted by cheaper models from Chinese rivals like Lenovo.

Initial sales of the S5 were positive, although critics said it offered little in the way of real innovation to set it apart from the iPhone and the Chinese phones and the feedback prompted the resignation of Samsung's chief phone designer .

While Samsung maintained a leading position in the global smartphone market in the first quarter of 2014, its share fell for the first time in four years to 31.2% from 32.4% a year ago.