Samsung's is losing its lead in the fiercely competitive smartphone market

Chinese rivals push Samsung's profits to three-year low

Samsung’s profits have slumped to the lowest in three years as the South Korean electronics giant battles growing competition from cheaper Chinese manufacturers.

The company has revealed its struggle with falling sales in a financial preview ahead of its earning report due this month.

Having dominated the global smartphone market over the past five years, Samsung’s latest products including the flagship Galaxy smartphone are failing to stay ahead of its rivals.

While the new Apple iPhone 6 with its larger screen is taking over the former Galaxy customer base in the USA, the thriving Chinese smartphone market is increasingly turning to upcoming local brands.

In today's report, Samsung said the median forecast of July-September operating income was 4.1 trillion won (£2.4bn). That was below the median of analysts' expectations of 5.2 trillion won, according to FactSet, a financial data provider. It would be a 60 per cent plunge from record-high 10.2 trillion won a year earlier.

The decline in Galaxy sales has hurt demand for Samsung components such as an advanced display called OLED.

"The operating margin declined due to increased marketing expenditure and lowered average selling price," Samsung said. The company said it "cautiously expects increased shipments of new smartphones and strong seasonal demand for TV products".

Samsung estimated sales for the July-September period declined 20 per cent from a year earlier to 47 trillion won (£27.6bn). That was slightly below analysts' expectations of 50.4 trillion won.

In January, analysts estimated Samsung's third quarter operating income would exceed 10 trillion won. That expectation has been steadily lowered to about half this month.

Quarterly profit from its mobile business, which reached 6.7 trillion a year earlier, is forecast to be a little over two trillion won.

The company needs to revamp its handset designs, said Lee Seung-woo, an analyst at IBK Securities.

"Rather than seeking stability, Samsung should seek to distinguish (its phones) with Galaxy's design policies," he said. "The iPhone 6 will be a significant threat to Samsung."

The company moved the launch of the Galaxy Note 4, a large smartphone with a stylus, to late September from October after Apple unveiled the iPhone 6. It also began sales of the Galaxy Note 4 in China last month, getting an early start in the world's most populous country before Apple.

Last month, Samsung also received upbeat initial responses to its Galaxy Note Edge smartphone, a smartphone with a curved side screen that can display weather, news, apps and other information. But the supply volume for the Edge smartphone will be limited, likely not giving a big boost to its earnings, analysts said.

With growth momentum in smartphones sagging, Samsung is moving to step up its presence in the semiconductor business.

This week, Samsung announced a 15.6 trillion won (£9.1bn) investment plan to build a new semi-conductor fabrication plant in the South Korean city of Pyeongtaek. The construction will begin before the summer next year and begin operations during the second half of 2017.

Samsung did not disclose net income or divisional earnings in its quarterly earnings preview.

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