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Samsung's flagging phone fortunes hit profits hard

Net earnings nearly halve in the third quarter compared to last year

Samsung Galaxy Note Android tablet and phone

Samsung has promised to shake up its smartphone line-up to try to win back some of the ground it has lost in the sector, after it revealed that its third-quarter operating profit was the lowest in more than three years.

Sammy’s operating profit was 4.1 trillion won ($3.9bn), while net profit was 4.2 trillion won. In the same quarter last year, Sammy had operating profit of 10.16 trillion ($9.6bn) and net profit of 8.24 trillion ($7.8bn).

The near halving of net profit was largely down to plummeting profits in the mobile division, which had been driving Samsung’s stellar results up until 2013. Operating profit in the unit dropped to 1.75 trillion won ($1.6bn) in the quarter, down from 6.7 trillion won ($6.3bn) a year earlier.

The Korean chaebol said that weakening profits in the division were down to a “weak smartphone product mix” and the fact that shipments of its high end models were declining.

In the next quarter, Sammy said that it expected demand to increase for the holiday season, but it’s also anticipating more competition on prices.

"Although the company anticipates a demand growth for the recently launched Galaxy Note 4 and new middle-end smartphone models, uncertainty remains for the IM Division, due to the year-end surge in competitor smartphone launches, which may require a potential increase in marketing expenses associated with year-end promotions," the firm said in a statement.

In a conference call with analysts, Sammy’s senior veep Kim Hyun-hoon said that the mid to low end of the mobile market was growing fast and the firm was planning to work on capitalising that growth.

Samsung’s smartphone strength has bolstered the company through lean earnings in other electronics divisions like TVs and chips, but there are some signs that the memory sector might be perking up.

Sammy saw operating profits in semiconductors raise slightly to 2.26 trillion won, just a bit above the 2.06 trillion won it made in the same quarter last year but still its highest earnings there since 2010.

The firm said it expects stable demand in the memory business next quarter and throughout 2015. ®

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