Visitors try out Samsung Electronics Co.'s Galaxy 5 at its showroom in Seoul, South Korea, Tuesday, July 8, 2014. Samsung Electronics Co. said operating profit declined to a two-year low in the second quarter, hit by the strong local currency and slowing demand for smartphones in China.(AP Photo/Ahn Young-joon)

Seoul - Samsung Electronics has forecast a recovery in sales after the biggest smartphone maker posted second-quarter profit that missed analyst estimates on competition from Chinese makers and gains in the South Korean won.

New products and demand for displays would boost results in the third quarter, the South Korean company said yesterday. Operating income fell about 24 percent to 7.2 trillion won (R76.7 billion) in the three months to June, the third consecutive quarterly drop.

Samsung is counting on demand for fourth-generation (4G) devices to revive growth as Apple lures premium customers and Chinese manufacturers Xiaomi and Lenovo Group pack features into cheap phones to lure budget buyers. Currency moves cut the value of overseas earnings as the South Korean company’s grip on the market for screens larger than 5 inches faces new competition, with Apple said to be preparing bigger iPhones.

“Samsung earnings will rebound in the third quarter, largely driven by explosive demand for 4G smartphones in China,” Claire Kim, an analyst at Daishin Securities, said. “If Samsung can maintain at least 20 percent market share in that segment, it will see higher smartphone sales during the quarter when the significant impact from Apple’s new devices isn’t yet expected.”

The operating profit of 7.2 trillion won compares with the 8.1 trillion won average of 34 analyst estimates compiled by Bloomberg. Expectations have been scaled back for Samsung, with at least 25 analysts cutting earnings estimates in the past four weeks. The average operating profit estimate has fallen about 13 percent from 9.3 trillion won on May 12.

Shares of Samsung rose 0.2 percent in Seoul trading, paring a 5.6 percent decline this year. The stock dropped 9.9 percent last year, its first annual decline since 2008.

Sales were about 52 trillion won in the quarter, the company said yesterday.

“The second quarter is a seasonally weak period for smartphone demand in China,” Samsung said.

“The company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone line-up. Samsung does not expect any major marketing expenditure to occur in the upcoming quarter.”

Samsung did not provide net income or details of division earnings, with audited results due to be reported later this month.

The Galaxy S5 was released with as much as $600 (R6 460) in freebies as Samsung seeks to defend itself against Chinese producers. Samsung sold 10 million S5 units within 25 days of its global release, a record for a Samsung device, the Korea Daily reported on May 10 without citing anyone.

The company’s total smartphone shipments slid to 78 million units in the second quarter from 87.5 million units sold in the first quarter, according to IBK Securities’s estimate.

“We see some concerns in the second half of the year as Apple is set to launch [its] iPhone 6 device,” said Marcello Ahn, a Seoul-based analyst at Quad Investment Management. “Manufacturing capabilities of Chinese smartphone makers, such as Xiaomi and Lenovo, have significantly improved enough to even compete well against Samsung’s lower-end smartphone models.”

Slower sales of tablet computers also forced analysts to slash their sales estimates for the quarter. – Bloomberg