Samsung to Post Lowest Profit in Three Years on Mobile Phones

Bloomberg.com reports that "Samsung Electronics, the world's third-biggest maker of mobile phones, may report its lowest profit in three years after the company cut handset prices to compete against rivals Nokia (NOK) and Motorola (MOT).

According to analysts polled by Bloomberg, "second-quarter net income probably fell 13 percent to 1.5 trillion won ($1.6 billion), from 1.7 trillion won a year earlier, as handset profit dropped 42 percent. Earnings from chips and liquid-crystal displays, which accounted for 49 percent of sales last year, were little changed."

The report may highlight the impact of price cuts on the $127 billion mobile phone industry after Motorola and Nokia introduced cheaper handsets to win market share. Investors will also look to Samsung for clues on the outlook for the electronics industry as the company is the world's second-largest chipmaker and the largest LCD maker.

Lee Young Seog at Korea Investment Trust Management said, "This was a nightmare quarter for earnings. As we move into the high season, we're going to have to see something special other than the typical improvement in demand for the stock to get a substantial boost."

According to Merrill Lynch estimates, "average second-quarter prices of Samsung mobile phones probably slid 10 percent. Volume shipments increased 10 percent to 26.9 million units."

The article also noted that in a separate survey of analysts, "LG Electronics, Asia's second-biggest mobile phone maker and No. 4 worldwide, probably had a record loss of 33 billion won from handsets."

Korea Investment & Securities analyst Michael Min believed "the estimated profit declines at Samsung and LG indicate Asian manufacturers aren't acting fast enough to combat price declines from Nokia and Motorola." Min thought Nokia and Motorola "are buying components and outsourcing handsets overseas to take advantage of growth in emerging markets such as India and China. Samsung and LG Electronics barely do so."

Neil Mawston at Strategy Analytics thought "Samsung and LG have seen the biggest declines in handset prices in the last couple of years."

Analysts at Morgan Stanley and Citigroup recently wrote in separate research notes that they believed "shipments and profits will rebound during the third quarter because of the company's three "ultra edition" phone models."