Samsung forecasts 25% drop in profit for Q2 2014 due to slowdown in smartphone market

Samsung Electronics is forecasting a 25% drop in profit for Q2 2014 due to a slowdown in the smartphone market and a strong Korean currency.

It expects to make an operating profit of 7.2 trillion won ($7.1 billion) in the April-to-June period, down from 9.5 trillion won a year ago.

Its operating profit has now fallen for three straight quarters.

Samsung is the world’s biggest maker of mobile phones and the handset division accounts for the bulk of its profits.

The South Korean firm said it “witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets” during the period.

Meanwhile, a stronger Korean currency also hurt Samsung’s earnings during the period.

The Korean won rose more than 11% against the US dollar and nearly 7% against the euro between July 2013 and end of June this year.

A strengthening currency hurts profits of firms such as Samsung – which rely heavily on exports – when they repatriate their foreign earnings.

Samsung’s growth in recent years has been powered mainly by its mobile phone division.

The success of its Galaxy range of smartphones, coupled with a growing global demand for such gadgets, saw it displace Nokia as the world’s biggest mobile phone maker in 2012.

However, the pace of growth of the smartphone market has been slowing down and the competition in the sector has also increased, forcing manufacturers to cut costs of their devices in an attempt to attract consumers.

Analysts said that profit margins in the sector are likely to fall even further.

Various other smartphone makers including China’s Xiaomi, Huawei and ZTE have been increasing their market share steadily.

For its part, Samsung has said it “cautiously expects a more positive outlook in the third quarter”.