S4 marketing blitz drags on Samsung profits

Samsung has forecast weaker than expected profits for the April to June quarter as heavy marketing costs for the launch of its latest flagship smartphone, the Galaxy S4, weighed on its margins.

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The South Korean electronics maker forecast it will make an operating profit of 9.5 trillion won (£5.5bn) in the period, but most analysts had predicted a figure closer to 10.1 trillion won. Shares in the company fell almost 4 per cent on the announcement and have dropped 17 per cent since early June.

Investor and analyst concern comes despite Samsung’s quarterly profit outlook representing a 47 per cent increase year on year and an 8.2 per cent rise on the previous quarter.

Samsung launched the Galaxy S4 smartphone in the quarter, backed by record marketing spend. The company told Marketing Week in March it hoped the launch campaign would boost preference for the brand by 30 per cent. 

Analyst Jeff Kim of Hyundai Securities told newswire AFP the “hefty marketing costs” failed to halt a slowdown in mobile sales, which have increased between just 4 to 8 per cent on the previous quarter. Kim added earnings will improve in the following quarter as marketing costs are expected to decrease as the company is not expected to launch any new flagship products.

While Samsung dominates the smartphone sector and accounts for more than 95 per cent of the Android sector’s profits, according to Strategy Analytics, the company has come under recent threat from Chinese mobile firms such as Huawei and ZTE releasing cheaper devices on the operating system. Some analysts have suggested Samsung needs to be more innovative with its upcoming products to catch the eye of consumers.

Kim added: “One of the biggest risks for Samsung Electronics going forward is that 70 per cent of its total operating profit comes from the mobile business. Diversification is key. Wearable devices are the next stage in a saturated industry that needs constant innovation to survive.”

Rival electronics company Sony Mobile released its latest “SmartWatch” last month as it looks to take a lead on the wearable tech sector.  Apple has also applied for the trademark “iWatch”, signalling it is looking to join the sector soon. 

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