Shrinking mobile biz takes gloss off Samsung's record profit

Company under pressure to produce eye-catching new smartphones after mobile biz shrinks 3.5% in Q2

Samsung Electronics Co Ltd is under mounting pressure to produce eye-catching new smartphones after its mobile business shrank 3.5% in the second quarter, taking the gloss off a record $8.5 billion operating profit.

The South Korean IT giant on Friday said April-June operating profit increased 47.5% from a year ago to 9.53 trillion won, in line with its estimate.

Profits at its mobile division, the biggest earnings generator, jumped 52% to 6.28 trillion won from a year ago but fell 3.5% from the previous quarter.

The reporting period included the launch of its flagship Galaxy S4 in April, backed by a massive advertising campaign, in Samsung's biggest assault yet on arch rival Apple Inc's iPhone.

Samsung said global smartphone sales growth may weaken in the third quarter and expected stiffer competition due to new product launches.

As the high-end smartphone market, which Samsung dominates along with Apple, slows in mature markets, the Asian firm is now running into trouble convincing investors that it can sustain strong growth by cracking into the more popular low-end segment.

Its competitors in that segment include natives of China, the world's biggest smartphone market, such as Huawei Technologies Co Ltd and ZTE Corp.

"As we go into a typically strong season for the IT industry, we expect earnings to continue to increase," Samsung said in its earnings statement.

"However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products."

Samsung said its 2013 capital spending would rise by more than 1 trillion won to 24 trillion won this year from 2012, joining rivals seeking to boost output. It said it may further increase investment depending on market conditions.

The world's biggest maker of memory chips and televisions also said profits from its chip business rose 71% to 1.76 trillion won on the back of soaring prices for semiconductors used in personal computers and mobile devices.

Shares of Samsung have lost 14% or 32.7 trillion won since early June, hit by a series of brokerage downgrades as concerns mount that its handset margins may drop on weakening sales of the S4 and slowing high-end market growth.

Apple on Tuesday reported stronger-than-expected iPhone sales, easing investor concerns that growing competition is hurting demand for its top-selling product.

But its quarterly profit fell 22% and gross margins slid below 37% from more than 42% in the year-ago quarter, in the absence of new products.

Samsung does not provide its smartphone sales breakdown, but analysts estimate about 72 million to 75 million devices were sold in the second quarter, widening the gap with second-ranked Apple.

The California-based firm sold 31.2 million iPhones in the April-June quarter, as it struggles with falling market share in China.