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Bloodied Samsung's profits down 25% as it clings to mobe crown

How will it ever survive on $7.1bn operating profit?

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Samsung issued unaudited earnings guidance for the second quarter of its fiscal 2014 on Tuesday – and although it once again pulled in an impressive pile of coin, all is not going as well as was hoped for the world's biggest smartphone maker.

The company said it now anticipates revenues of around 52.0 trillion South Korean won ($51.5bn) for the quarter, a decrease of 9.5 per cent from the same period a year ago.

Worse, operating profit is expected to be down a gruesome 24.5 per cent from the year-ago quarter, coming in at approximately 7.2 trillion won ($7.1bn).

Analysts were expecting profits more along the lines of 8.3 trillion won ($8.2bn), on average, according to a poll by Thompson Reuters.

In its guidance, Samsung said the underperforming quarter was due in large part to sagging growth in the smartphone market, particularly as the South Korean firm faces growing competition on the low end from Chinese firms including Huawei, Lenovo, Xiaomi, and ZTE.

As inventories of its cheaper phones piled up in the distribution channel, Samsung was also forced to increase its marketing expenditures "somewhat aggressively," which further ate into its bottom line.

Outside of smartphones, sales of Samsung tablets – a category often hailed as the savior of the computing industry, in light of spiraling PC sales – were generally disappointing, a worrying development.

"For tablets, shipments declined more than expected level due to weak overall market demand and, unlike smartphone, lack of carriers' subsidies policy led to low replacement demand," the chaebol's guidance explains.

The rise of "phablets" – smartphones with 5-to-6-inch screens – also cut into fondleslab sales, Samsung says, particularly in the smaller, 7-to-8-inch display range.

In turn, fewer shipments of shiny gadgets meant slower sales for Samsung's display and semiconductor divisions, which manufacture components for smartphones and tablets.

Still, there's light at the end of the tunnel, the South Korean firm claims. Samsung says that seasonal uptick in its electronics businesses in the third quarter, combined with a tighter marketing budget and the launch of the company's new smartphone lineup, should lead to "a more positive outlook" – though it stopped short of saying to expect year-over-year growth. ®

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