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Samsung 2nd quarter misses forecast

There’s deepened fears from investors that the mobile giant may follow in the footsteps of Apple.

UNITED STATES, New York CIty : Samsung's new Galaxy S4 is seen during its unveiling on 14 March 2013 at Radio City Music Hall in New York. Picture: AFP

SEOUL - Samsung Electronics Co Ltd missed already modest expectations for its quarterly earnings guidance on Friday, deepening worries that its smartphone business may have peaked, as growth in sales of its blockbuster Galaxy phones begins to wane and new rivals emerge to eat away at its market share.

The Galaxy S, powered by Google's free Android platform, propelled the South Korean firm into the top rank of smartphone makers in 2012, overtaking Apple Inc. whose iPhone had set an industry standard five years earlier.

Now investors' confidence is waning amid simmering fears that Samsung may also follow in the footsteps of Apple and other once-mighty players that are struggling with shrinking margins.

"Is Samsung's smartphone story now over? Not quite yet. Its growth is indeed slowing due largely to disappointing sales of the S4," said Jung Sang-jin, a fund manager at Dongbu Asset Management, which owns Samsung shares.

"Yet I think Samsung has some exciting stuff up its sleeves. The problem is no one is sure whether these products can really wow investors and consumers."

The disappointing earnings estimate by Samsung sent its shares down more than 3 percent on Friday. Their shares have dropped by 17 percent since early June.

The share price reflects concerns about Samsung's handset margins, with its mobile business generating 70 percent of the tech giant's total profit.

The fall in the share price equates to a drop in market value of $34.2 billion, or worth the combined market capitalisation of Sony Corp and LG Electronics Inc.

This is after it emerged that 70 percent of total operating profit comes from mobile business. Samsung needs to engage in active business transition until end-2014," said Jeff Kim, an analyst at Hyundai Securities.

"I think Samsung spent more on marketing expenses than expected because of the launch of Galaxy S4 smartphone, which led the company's results to miss the market consensus," HMC Investment Securities analyst Nho Geun-Chang said.

NEXT BIG THING

Samsung has filed a trademark for "Samsung Gear" in the United States for its range of wearable devices.

"The (expected launch of) wearable devices won't be able to replace Samsung's smartphone business, but it's more likely to complement its earnings at best," said Byun Han-joon, an analyst at KB Investment & Securities.