Samsung Q2 earnings guidance misses forecasts

Samsung's Galaxy slowdown

Samsung Electronics on Tuesday estimated its operating profit at 6.9 trillion won during the second quarter, below analyst expectations, the company said on Tuesday.

Analysts had been expecting April-June operating profit to come in at 7.2 trillion won, the same as a year earlier and up from 6 trillion won in January-March, according to a Reuters poll.

The projected 4 percent annual fall in operating profit marks the seventh consecutive quarter of declines for the world's largest smartphone maker by shipments.

Revenue, meanwhile, is expected to total 48 trillion won in the second quarter, underperforming forecasts for 53.4 trillion won.

Samsung's shares opened down 0.8 following the guidance, compared with a 0.6 percent gain in the broader market, but pared losses shortly after. They were last seen up 1.3 percent at 1.24 million won.

Analysts attributed the lower-than-expected earnings guidance to continued weakness in the company's mobile business.

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"Samsung's smartphone division is performing really poorly and its semiconductor business isn't outperforming because weak overall demand for handsets is limiting semiconductor demand," Tom Kang, research director at Counterpoint Research told CNBC.

The company is set to report its net profit and a breakdown of the performance of its business divisions later this month.

Samsung's Galaxy S6 and Galaxy S6 edge, introduced in April, were expected to revive the company's dim sales performance. However, this has not been the case.

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After an initial spike in demand following its launch, "our monthly tracking shows that Galaxy S6 sales are falling off," said Kang.

"There were initial supply issues for the edge model, but now I think Samsung has missed its window of opportunity, as it's not that popular among consumers at this point," he said, adding that the price tag of the phone would need to be lowered in order to regenerate interest from potential buyers.

H2 outlook

Looking ahead, Dohoon Lee, an analyst at CIMB sees further downside risks to earnings due to "weakening smartphone business momentum along with the fading of the initial S6 effect."

However, he believes that such concerns are already factored into the current valuations and that relative strength in its semiconductor division could help drive its share price higher. Lee has a 12-month price target of 1.7 million won for the stock.

"While smartphone concerns linger, we expect SEC's [Samsung's] overall operating profit to still grow 51% yoy in 2H15, thanks to: 1) strong semiconductor earnings, driven by NAND and system LSI, and 2) healthier handset inventory and cost control compared to last year," he wrote in a note published last week.

Troubles at Samsung Group

Headwinds at Samsung Electronics are just one headache for parent company Samsung Group.

The conglomerate continues to be embroiled in a legal battle with U.S. activist hedge fund Elliott, which is seeking to block a merger between two Samsung Group subsidiaries - Samsung C&T and Cheil Industries.

On Tuesday, a South Korean court denied an injunction request by Elliott seeking to block Samsung C&T Corp from selling treasury shares to chemicals firm KCC, clearing another legal hurdle for the proposed merger of the two Samsung Group firms, Reuters reported.

The treasury stake sale would make KCC the fourth largest stakeholder of Samsung C&T after Elliott, which holds a 7.1 percent stake, according to the Wall Street Journal.