Samsung Q3 net profit tumbles by 49%

Samsung's net profit for the third quarter of 2014 plunged by almost 50 percent compared to the same period last year, with the South Korean tech giant indicating that its smartphone revenue had taken a hit due to increased competition and reduced prices for older phones.

The company reported quarterly net profit of (KRW) 4.22 trillion won ($4 billion), or 8.9 percent of sales. This is a 49 percent drop from the 8.24 trillion won ($7.8 billion) it reported for the same period last year, and well below its second-quarter net profit result of 6.25 trillion won ($5.9 billion).

In October, the company released its guidance for the third quarter, telling investors that it expected a 60 percent drop in operating profit for the period, compared to the previous year.

The third-quarter results showed that the company's operating profit for the quarter dropped to 4.06 trillion won ($3.86 billion), down from last year's 10.16 trillion won ($9.65 billion) for the same period.

Pre-tax profit for the quarter ending September was 4.85 trillion won ($4.6 billion), almost half of last quarter's 7.19 trillion won ($6.8 billion).

Meanwhile, the company reported sales of 47.45 trillion won ($45 billion) for the quarter, down from the previous quarter's 52.35 trillion won ($49.7 billion), and the 59.08 trillion won ($56.1 billion) it recorded for the same period last year.

Gross profit for Q3 2014 came in at 16.74 trillion won ($15.9 billion), down from the previous quarter's 20.68 trillion won ($19.6 billion).

The company's earnings margin before interest, tax, depreciation, and amortisation (EBITDA) was 18 percent. Last quarter, its EBITDA was 22 percent, while the same quarter last year recorded an EBITDA of 24 percent.

Samsung's cash tally at the end of the quarter was 66.95 trillion won ($63.6 billion), up from this time last year, when it stood at 52.68 trillion won ($50 billion).

Much of the earnings hit came from the company's mobile business, which saw a quarter-on-quarter sales revenue tumble 15 percent to 23.52 trillion won ($22.3 billion). For the same period last year, the company reported mobile sales of 35.66 trillion won ($33.87 billion).

However, its semiconductor business saw a slight, 1 percent quarterly boost in sales revenue to 9.89 trillion won ($9.4 billion), while the division's memory sales revenue experienced a 15 percent rise in revenue to 7.93 trillion won ($7.53 billion) from the previous quarter.

Additionally, the company's mobile business saw a 2.67 trillion won ($2.54 billion) drop in operating profit to 1.75 trillion won ($1.66 billion) compared to the previous quarter, while its semiconductor division saw a slight 0.40 trillion won ($0.38 billion) quarterly rise to 2.26 trillion ($2.14 billion).

Samsung said that despite a slight growth in shipments from its mobile business, earnings for the division declined during the quarter because a "weak smartphone product mix and sales decrease put pressure on the cost structure".

Korea's fiscal Q3 (US Q4) — from July to September — was dominated somewhat by the initial release of the iPhone 6 and 6 Plus last month, with Apple shifting 10 million handsets in the first weekend.

According to market analysis firm IDC, Samsung still retained the bulk of global smartphone shipment volumes during the quarter — 78.1 percent — but the company's shipment volume dropped by 8.2 percent from 85 percent of market share — the only company among the top five vendors to see shipment volume decline year-on-year for the period.

Samsung said that the Galaxy Note 4, which it released in September, provided a "marginal impact" to the quarterly results. However, tablet shipments increased, thanks, in part, to the Tab S.

Samsung said in a statement that although it expects increased competition by competitor smartphone makers in the fourth quarter of 2014, it also expects demand for smartphones and tablets to increase due to "year-end seasonality".

With Samsung accounting for an estimated 25 percent of South Korea's gross domestic product, some analysts have predicted that the company's third quarter could impact the country's economy.

The results come as Korea’s second-largest handset maker LG has experienced record quarterly smartphone sales.

LG said this month that it shipped 16.8 million smartphones during the July to September period, its highest ever for a business quarter.

It toppled LG's previous record, set in the second quarter of the year, of 14.5 million units. It is also 39 percent higher than the 12 million posted in last year's third quarter.

Corrected at 5.15pm AEDST: Corrected to say that the iPhone 6 and 6 Plus release occurred in Korean Q3, which is synchronous with US Q4.