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Samsung’s profit falls as smartphones get cheaper

Visitors try out Samsung Electronics Co.'s Galaxy Note 3 its showroom Seoul South KoreTuesday April 1 2014. Declining smartphone prices

Visitors try out Samsung Electronics Co.'s Galaxy Note 3 at its showroom in Seoul, South Korea, Tuesday, April 1, 2014. Declining smartphone prices hit profit at Samsung for a second straight quarter. The consumer technology heavyweight said Tuesday that it expects operating income of about 8.4 trillion won ($8 billion) for the January-March quarter, down 4 percent from a year earlier. (AP Photo/Ahn Young-joon)

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SEOUL, South Korea — Declining smartphone prices hit profit at Samsung Electronics Co. for a second straight quarter.

The consumer technology heavyweight said Tuesday it expects operating income of about $8 billion for the January-March quarter, down 4 percent from a year earlier. Sales were flat at about $50.8 billion. Samsung, the world’s largest maker of smartphones, televisions and memory chips, will release full quarterly results later this month.

The operating profit was in line with the median estimate by analysts surveyed by FactSet. Compared with the previous quarter, sales sank 11 percent while operating income inched up 1 percent.

The year-on-year profit decline shows the challenge for Samsung to maintain earnings growth as smartphone prices fall. The devices are its biggest cash cow, accounting for more than two-third of its income.

The average price of a Samsung smartphone this year will likely be $275, down 9 percent from 2013, according to Chung Chang-won, an analyst at Nomura Financial Investment.

That is because smartphone sales growth is slowing in North America, Europe, South Korea and Japan while consumers in developing nations tend to buy cheaper handsets.

Chinese handset makers are also vying for customers in emerging markets. Samsung faces competition from a slew of handset makers in regions such as Southeast Asia where Lenovo and Xiaomi are expanding.

“In 2014, I expect that even more Chinese vendors will come in and they will put in greater investment in such emerging markets and they will pose a bigger threat” to Samsung, said Ryan Lai, an analyst at research firm IDC.

Declining prices of smartphones also put pressure on profit margins for components that go into mobile devices, such as memory chips and display panels, two other key products made by Samsung.

Most analysts expected Samsung’s bottom line to improve from the current quarter as the latest version of its flagship smartphone, the Galaxy S5, goes on sale worldwide Friday. It selling the phone for slightly less than the previous version.



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