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July 8, 2014

Galaxy S5 fails to save Samsung from 25% profits drop

Analyst questions Samsung's third consecutive quarterly fall being blamed on smartphone slowdown.

By Ben Sullivan

Samsung has predicted a 25% drop in profit for the second quarter of 2014, claiming a slowing smartphone market is to blame.

The Korean firm expected to make an operating profit of £4.2bn (7.2 trillion won) in the April – June period, which is down from 9.5 trillion the same time last year.

This is the third consecutive quarter its operating profit has dropped. Samsung said it had "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."

However, a Gartner report released yesterday shows strong smartphone sales globally.

Annette Zimmermann, an analyst at research firm Gartner, tolf CBR: "On smartphone [sales] slowing down, I don’t have evidence for such a trend as of now.

"The bigger issue here is really the profits that are reflection of a price war among Android smartphone vendors in the mid and lower tier price segment. New (Chinese) brands like Lenovo and Wiko and even Huawei put extreme price pressure on the established players in Europe and so Samsung goes along with lowering prices or special promotions.

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"I was already saying a few months ago that Samsung urgently needs to innovate in the mid tier product portfolio and create more brand stickiness in order to compete the rest of the Android crowd. The Galaxy S5 is selling well according to some spot checks I have done so that is not really the issue. I don’t think Tizen is the answer to their problem."

In June, it was revealed that Samsung’s flagship, the Galaxy S5, was only the third best-selling smartphone in the UK in May, losing out to Apple’s iPhone 5S and 5C.

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