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Samsung Issues Surprise Profits Warning

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Samsung has issued a sharp profits warning, and is forecasting that its second quarter profits will be badly hurt by a slow down in smartphone sales, and local currency problems.

The company warned that its underlying operating profit is likely to fall by a quarter, to KRW7.2 trillion (USD7.1 billion) for the three months to the end of June.

That marks the third consecutive quarter of operating profit declines, but the size of the latest forecast has alarmed investors.

Although the company said that declining smartphone sales in an increasingly saturated and increasingly competitive market was in part to blame, it was also hurt by a strong South Korean currency which reduces the value of its profits from overseas.

The Korean currency has risen by more than 11% against the US dollar and nearly 7% against the Euro over the past year.

Hence, the underlying picture, once you remove the currency issue out is not as bad as the headline implies.

For its part, Samsung is counting on customers wanting handset upgrades as more mobile networks launch 4G services, and the firm expects to hold onto the premium end of the market even as it faces pressure from cheaper Chinese vendors.

"The second quarter is a seasonally weak period for smartphone demand in China," Samsung said in a statement. "The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter."

The full financial statement is due later this month.

Despite the decline in operating profits, the company is still sitting on a cash pile of around USD60 billion, and is now coming under pressure to start increasing dividend payments to its investors as it lags other companies in how much of its profits it pays out to its owners.

Without a rise in dividends, the company is projected to see its cash pile rise to the USD100 billion mark by the end of 2015, even if smartphone sales do not improve.

Samsung has previously indicated that it might review its dividend policy, but hasn't made any announcements about that since last November.

However, the company's shareprice has fallen sharply in recent months, and rising dividends is one way of reversing the decline, which has wiped around USD25 billion off the company's valuation over the past month.

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Tags: samsung  Korea