Samsung expects big drop in first-quarter profits

The company is battling fierce competition at both ends of the smartphone business

Samsung Electronics expects first quarter profits to drop by more than 30 percent, marking the sixth straight quarterly decline at the company, which is struggling to compete with Apple at the top of the smartphone market.

Operating profit for the quarter, which included the key year-end sales period, will be around 5.9 trillion won (US$5.4 billion), a drop of just over 30 percent versus the last three months of 2013, while revenue is expected to be 47 trillion won, down 12 percent, the company said in its earnings guidance. It will report its full quarterly results at the end of the month.

The profits outlook isn't as bad as analysts had feared.

Samsung, long the king of the smartphone market, is facing stiff competition at both ends of its business. At the low-end, a new wave of low-cost Chinese smartphone makers like Xiaomi are taking away market share, while on the high-end Samsung is locked in a fierce battle with Apple.

For several years, Samsung led sales in the market by offering large screens -- something Apple stubbornly refused to adopt -- but that changed with the iPhone 6. Apple offered two versions of the phone with large screens and consumers loved them.

The iPhone 6 became the best phone launch in Apple's history and unseated Samsung at the top of the market, according to an estimate by Gartner. Apple sold 74.8 million phones in the fourth quarter against Samsung's 73 million, Gartner said.

That's why the Galaxy S6, which goes on sale this week, is particularly important for Samsung.

In designing the phone, the company has moved away from the black plastic it has traditionally used and turned to glass and metal, much like the iPhone. One version of the S6 has a screen that curves at the edge -- a distinctive feature. The phone has received wide praise from reviewers but it's too early to know how consumers will react.

Samsung's semiconductor business is enjoying growing profits thanks to increased demand for DRAM memory chips. Samsung is also the world's largest manufacturer of high-speed DDR3 DRAM chips, which are used in phones, personal computers and servers.

Martyn Williams covers mobile telecoms, Silicon Valley and general technology breaking news for The IDG News Service. Follow Martyn on Twitter at @martyn_williams. Martyn's e-mail address is martyn_williams@idg.com

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