Samsung starts to struggle

A slowdown in smartphone sales has dented profits at the Korean tech giant. But that’s not the only problem. Alice Gråhns reports.

A new smartphone will be launched in August

"Samsung's winning streak is over," says Jacky Wong in The Wall Street Journal. Last week the $300bn technology giant announced that it expects its operating profit last quarter to have undershot analysts' estimates and dropped by 5.4% compared with the previous three months, down to around $13.2bn. That would mark the first quarterly decline in two years. Samsung also reckons that sales in the three months to June fell 5% to $52bn year-on-year.

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This "shouldn't be a surprise", says Tim Culpan on Bloomberg. It is the third consecutive quarter that Samsung missed the mark at the top line. Analysts have also gradually lowered their second-quarter projections since last autumn. So what's going on?

The main problem is that smartphone sales have cooled, says Sam Kim, also on Bloomberg. The trend began last year, but seems to have got worse. Last year it didn't affect the overall results, but this time round lower sales of Samsung's Galaxy S9 devices in the first quarter have had an impact. Sales of components such as smartphone screens to rivals including Apple have failed to live up to projections too.

This comes even as it dominates the markets for NAND memory chips used for storage and dynamic random-access memory (DRAM), another type of memory chip used for processing. The problem here is that increased competition in this field has taken its toll on prices. Memory chips generated 25% of Samsung's revenue in the first quarter.

Is the dip a blip?

The business is in fine fettle, says Robyn Mak on Breakingviews. With a new phone out in August, and overall demand for memory chips "booming", this quarter looks like "a blip". But Samsung has "bigger worries". Last month Chinese regulators launched a price-fixing investigation into Samsung and rivals SK Hynix and Micron. The trio dominate the global market for DRAM, where average prices are expected to surge 15% this year. (China is the top importer of memory chips, accounting for a fifth of global demand.) Meanwhile, South Korea's regulator wants to cut the equity stakes held by insurance firms in non-financial affiliates. Two insurance arms in the Samsung group may nowhave to off-load up to 9.3% of Samsung. Still, with the shares already down by a fifth since November, "investors can always fall back on the promise of Samsung's $63bn cash pile", says Wong. The group has promised to raise its dividend for this year and the next two, implying a yield of 3% that "could yet rise higher".

Mothercare's endless tale of woe

"Mothercare would be a good place for those feeling in need of a drop of rain to go looking," says James Moore in The Independent. The struggling retailer has been "under a cloud for months now and it's only getting thicker". It had planned to close 50 stores and cut 800 jobs, but this has now risen to 60 and 900 respectively. That would leave the group with 77 shops, down from 425 ten years ago. Mothercare hasn't gained enough support from creditors of its Children's World subsidiary to secure it a company voluntary agreement (CVA) to deal with its debts, so it has put the unit into administration.

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It's been an endless tale of woe at Mothercare, says Kate Burgess in the FT. In 2014 it saw off a 300p bid from US rival Destination Maternity and then launched a nine-for-ten rights issue at 125p. Now the company's shares are at 27p, valuing the group at £50m, following a £32.5m placingat 19p a share this week. Mothercare needs the cash to pay off debt and get on with store closures in the context of a group-wide CVA .

The shares have now sunk so low that "there's no point in shareholders throwing a tantrum", says Nils Pratley in The Guardian. The fundraising is underwritten, so Mothercare will certainly get its cash. But the basic problem remains: we need proof that the group "can win back consumers in the age of Amazon and... competition from supermarkets".

City talk

The threatened exclusion from Europe's Galileo satellite navigation system as a result of Brexit "makes it all the more important that Inmarsat... remains in UK hands", says Alex Brummer in the Daily Mail. The board of the satellite and communications firm has so far rejected two bids from US competitor EchoStar. Even if EchoStar was allowed to come back with a "stonking offer", or if France's Eutelsat renewed its interest, the deal could be vetoed for national security reasons. Meanwhile, the 10% drop in the share price following the bid rejection will disappoint short-term investors. We can only hope that cornerstone shareholders "keep the faith and hang on".

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Iain Ferguson "couldn't chair an ironing board, let alone one supposed to be supervising the £800m owner of Southend airport", says Alistair Osborne in The Times. So it's no major shock that Stobart's chairman, narrowly re-elected on Saturday with 51.2% of the vote, is starting to look for his successor. One problem is that he can't keep sacking founder Andrew Tinkler, who got himself re-elected to the board only to be booted out again. "Someone has to reunite Stobart's warring factions" it can't be him.

A potential new treatment for Alzheimer's from biotech giant Biogen and its Japanese partner Eisai spurred a 20% jump in Biogen's share price last week. But investors should not "get too swept up in the excitement", says Charley Grant in The Wall Street Journal. Full data will only be presented at a future medical conference, so until then investors can't be sure of the extent of any benefit for patients. Always remember that "the reason such a massive market opportunity exists is that developing Alzheimer's drugs has stymied drug-development experts for decades".




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