Weak U.S. durable goods data dims growth outlook

Washers and dryers are seen on display at a store in New York July 28, 2010.

Credit: Reuters/Shannon Stapleton

By Lucia Mutikani

WASHINGTON | Mon Aug 26, 2013 12:07pm EDT

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods also tumbled, casting a shadow over the economy early in the third quarter.

The report on Monday added to other data for July on industrial production, housing starts and new home sales that have suggested economic growth this quarter will probably not accelerate as much as economists had hoped.

"So far, things aren't looking that great," said Millan Mulraine, senior macro strategist at TD Securities in New York. "We are expecting a bounce in growth, it can still come, but it may not necessarily be in the first month of the quarter."

The Commerce Department said durable goods orders dropped 7.3 percent as demand for items ranging from aircraft to computers and defense equipment fell.

It was the biggest decline since last August and snapped three consecutive months of gains.

Orders for durable goods - items from toasters to aircraft that are meant to last three years or more - had increased 3.9 percent in June. Economists had expected orders to fall 4.0 percent last month.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3 percent, breaking four straight months of gains. It was the biggest drop since February.

Orders for these so-called core capital goods increased 1.3 percent in June. Economists had expected this category to rise 0.5 percent in July.

The decline in demand suggested the manufacturing sector, which hit a speed bump early in the year, will probably not bounce back as quickly as many economists had anticipated.

The report was at odds with a survey from the Institute for Supply Management released earlier this month that showed new orders at their highest level in more than two years in July.

Still, it was the latest sign that economic growth might not accelerate much from the second quarter's 1.7 percent annual pace. Industrial output was flat in July, while residential construction increased less than expected and new home sales tumbled last month.

SHIPMENTS FALL

Troublingly, the durable goods report showed that shipments of core capital goods, which are used to calculate equipment and software spending in the government's measure of gross domestic product, fell 1.5 percent in July.

Shipments had dropped 0.8 percent in June. While shipments tend to decline in July because not all components in this category are seasonally adjusted, economists noted the drop last month was the largest since 2008.

Forecasting firm Macroeconomic Advisers lowered its third-quarter GDP growth estimate by two tenths of a percentage point to a 1.8 percent rate. Barclays cut its GDP growth forecast to a 1.9 percent rate from 2.1 percent.

Economists said while the drop in core capital goods orders could attract the attention of some Federal Reserve officials, it was unlikely the U.S. central bank would step away from a plan to start reducing its monthly bond purchases before the end of the year.

Some blamed the weak July data on a recent spike in interest rates in anticipation of a reduction in the Fed's bond buying, which many think will come at its next meeting on September 17-18.

"When looking for signs that interest rate increases are too much for the economy to handle, durable goods, like housing, are a leading indicator of weakness in the broader economy," said Chris Low, chief economist at FTN Financial in New York.

"We expect the Fed is determined to start reducing the size of asset purchases regardless, in part because the market has already begun to reverse some of the recent rate pressure without the Fed's help."

U.S. Treasury debt prices rose on the data, pushing yields lower, while the dollar fell against the yen. U.S. stocks were up marginally.

Durable goods orders in July were held down by a 19.4 percent plunge in bookings for transportation equipment. That reflected a 52.3 percent drop in orders for civilian aircraft.

Boeing received orders for 90 aircraft in July, down from 287 aircraft the prior month, according to information posted on its website. Orders for motor vehicles gained 0.5 percent after rising 0.2 percent the prior month.

Even excluding transportation, demand for long-lasting manufactured goods was weak almost across the board.

There were declines in orders for computers and electronic products, and demand for electrical equipment, appliances and components also fell. Orders for machinery and primary metals were flat.

Orders for defense capital goods plummeted 21.7 percent in July after hefty gains in the prior months.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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Weak U.S. durable goods data dims growth outlook

Washers and dryers are seen on display at a store in New York July 28, 2010.

Credit: Reuters/Shannon Stapleton

By Lucia Mutikani

WASHINGTON | Mon Aug 26, 2013 12:07pm EDT

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods also tumbled, casting a shadow over the economy early in the third quarter.

The report on Monday added to other data for July on industrial production, housing starts and new home sales that have suggested economic growth this quarter will probably not accelerate as much as economists had hoped.

"So far, things aren't looking that great," said Millan Mulraine, senior macro strategist at TD Securities in New York. "We are expecting a bounce in growth, it can still come, but it may not necessarily be in the first month of the quarter."

The Commerce Department said durable goods orders dropped 7.3 percent as demand for items ranging from aircraft to computers and defense equipment fell.

It was the biggest decline since last August and snapped three consecutive months of gains.

Orders for durable goods - items from toasters to aircraft that are meant to last three years or more - had increased 3.9 percent in June. Economists had expected orders to fall 4.0 percent last month.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3 percent, breaking four straight months of gains. It was the biggest drop since February.

Orders for these so-called core capital goods increased 1.3 percent in June. Economists had expected this category to rise 0.5 percent in July.

The decline in demand suggested the manufacturing sector, which hit a speed bump early in the year, will probably not bounce back as quickly as many economists had anticipated.

The report was at odds with a survey from the Institute for Supply Management released earlier this month that showed new orders at their highest level in more than two years in July.

Still, it was the latest sign that economic growth might not accelerate much from the second quarter's 1.7 percent annual pace. Industrial output was flat in July, while residential construction increased less than expected and new home sales tumbled last month.

SHIPMENTS FALL

Troublingly, the durable goods report showed that shipments of core capital goods, which are used to calculate equipment and software spending in the government's measure of gross domestic product, fell 1.5 percent in July.

Shipments had dropped 0.8 percent in June. While shipments tend to decline in July because not all components in this category are seasonally adjusted, economists noted the drop last month was the largest since 2008.

Forecasting firm Macroeconomic Advisers lowered its third-quarter GDP growth estimate by two tenths of a percentage point to a 1.8 percent rate. Barclays cut its GDP growth forecast to a 1.9 percent rate from 2.1 percent.

Economists said while the drop in core capital goods orders could attract the attention of some Federal Reserve officials, it was unlikely the U.S. central bank would step away from a plan to start reducing its monthly bond purchases before the end of the year.

Some blamed the weak July data on a recent spike in interest rates in anticipation of a reduction in the Fed's bond buying, which many think will come at its next meeting on September 17-18.

"When looking for signs that interest rate increases are too much for the economy to handle, durable goods, like housing, are a leading indicator of weakness in the broader economy," said Chris Low, chief economist at FTN Financial in New York.

"We expect the Fed is determined to start reducing the size of asset purchases regardless, in part because the market has already begun to reverse some of the recent rate pressure without the Fed's help."

U.S. Treasury debt prices rose on the data, pushing yields lower, while the dollar fell against the yen. U.S. stocks were up marginally.

Durable goods orders in July were held down by a 19.4 percent plunge in bookings for transportation equipment. That reflected a 52.3 percent drop in orders for civilian aircraft.

Boeing received orders for 90 aircraft in July, down from 287 aircraft the prior month, according to information posted on its website. Orders for motor vehicles gained 0.5 percent after rising 0.2 percent the prior month.

Even excluding transportation, demand for long-lasting manufactured goods was weak almost across the board.

There were declines in orders for computers and electronic products, and demand for electrical equipment, appliances and components also fell. Orders for machinery and primary metals were flat.

Orders for defense capital goods plummeted 21.7 percent in July after hefty gains in the prior months.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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Weak U.S. durable goods data dims growth outlook

Washers and dryers are seen on display at a store in New York July 28, 2010.

Credit: Reuters/Shannon Stapleton

By Lucia Mutikani

WASHINGTON | Mon Aug 26, 2013 12:07pm EDT

WASHINGTON (Reuters) - Orders for long-lasting U.S. manufactured goods recorded their biggest drop in nearly a year in July and a gauge of planned business spending on capital goods also tumbled, casting a shadow over the economy early in the third quarter.

The report on Monday added to other data for July on industrial production, housing starts and new home sales that have suggested economic growth this quarter will probably not accelerate as much as economists had hoped.

"So far, things aren't looking that great," said Millan Mulraine, senior macro strategist at TD Securities in New York. "We are expecting a bounce in growth, it can still come, but it may not necessarily be in the first month of the quarter."

The Commerce Department said durable goods orders dropped 7.3 percent as demand for items ranging from aircraft to computers and defense equipment fell.

It was the biggest decline since last August and snapped three consecutive months of gains.

Orders for durable goods - items from toasters to aircraft that are meant to last three years or more - had increased 3.9 percent in June. Economists had expected orders to fall 4.0 percent last month.

Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 3.3 percent, breaking four straight months of gains. It was the biggest drop since February.

Orders for these so-called core capital goods increased 1.3 percent in June. Economists had expected this category to rise 0.5 percent in July.

The decline in demand suggested the manufacturing sector, which hit a speed bump early in the year, will probably not bounce back as quickly as many economists had anticipated.

The report was at odds with a survey from the Institute for Supply Management released earlier this month that showed new orders at their highest level in more than two years in July.

Still, it was the latest sign that economic growth might not accelerate much from the second quarter's 1.7 percent annual pace. Industrial output was flat in July, while residential construction increased less than expected and new home sales tumbled last month.

SHIPMENTS FALL

Troublingly, the durable goods report showed that shipments of core capital goods, which are used to calculate equipment and software spending in the government's measure of gross domestic product, fell 1.5 percent in July.

Shipments had dropped 0.8 percent in June. While shipments tend to decline in July because not all components in this category are seasonally adjusted, economists noted the drop last month was the largest since 2008.

Forecasting firm Macroeconomic Advisers lowered its third-quarter GDP growth estimate by two tenths of a percentage point to a 1.8 percent rate. Barclays cut its GDP growth forecast to a 1.9 percent rate from 2.1 percent.

Economists said while the drop in core capital goods orders could attract the attention of some Federal Reserve officials, it was unlikely the U.S. central bank would step away from a plan to start reducing its monthly bond purchases before the end of the year.

Some blamed the weak July data on a recent spike in interest rates in anticipation of a reduction in the Fed's bond buying, which many think will come at its next meeting on September 17-18.

"When looking for signs that interest rate increases are too much for the economy to handle, durable goods, like housing, are a leading indicator of weakness in the broader economy," said Chris Low, chief economist at FTN Financial in New York.

"We expect the Fed is determined to start reducing the size of asset purchases regardless, in part because the market has already begun to reverse some of the recent rate pressure without the Fed's help."

U.S. Treasury debt prices rose on the data, pushing yields lower, while the dollar fell against the yen. U.S. stocks were up marginally.

Durable goods orders in July were held down by a 19.4 percent plunge in bookings for transportation equipment. That reflected a 52.3 percent drop in orders for civilian aircraft.

Boeing received orders for 90 aircraft in July, down from 287 aircraft the prior month, according to information posted on its website. Orders for motor vehicles gained 0.5 percent after rising 0.2 percent the prior month.

Even excluding transportation, demand for long-lasting manufactured goods was weak almost across the board.

There were declines in orders for computers and electronic products, and demand for electrical equipment, appliances and components also fell. Orders for machinery and primary metals were flat.

Orders for defense capital goods plummeted 21.7 percent in July after hefty gains in the prior months.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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Abercrombie & Fitch same-store sales plummet, outlook weak

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Abercrombie & Fitch same-store sales plummet; outlook weak

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Staples cuts outlook after weak results abroad

By Dhanya Skariachan

Wed Aug 21, 2013 7:51am EDT

n">(Reuters) - Staples Inc (SPLS.O) reported weaker-than-expected quarterly results on Wednesday on dismal sales in international markets such as Europe and Australia, prompting the largest U.S. office supply retailer to cut its outlook for the year.

Shares of Staples tumbled 12.4 percent to $14.75 in trading before the market opened.

Less customer traffic led to a 6 percent decline in sales at European stores open at least a year. The company also tied some of the weakness to the closure of 49 European stores.

While Staples has done better than rivals Office Depot Inc (ODP.N) and OfficeMax Inc (OMX.N) and has higher market share in the United States, the industry leader has struggled abroad due to economic weakness in Europe that has hurt sales to both corporate customers and individuals.

The results and outlook "while disappointing, were not entirely surprising given the still tepid U.S. macroeconomic environment and even worse conditions internationally," BB&T Capital Markets analyst Anthony Chukumba said in a note.

Chukumba still has "a fairly bullish view" of the industry leader citing its efforts to cut costs and the pending merger of its smaller rivals Office Depot and OfficeMax.

Net earnings fell to $102.5 million, or 16 cents a share in the second quarter that ended on August 3, from $120.4 million, or 18 cents a share a year earlier.

Analysts on average were expecting a profit of 18 cents a share, according to Thomson Reuters I/B/E/S.

Sales fell 2 percent to $5.31 billion, falling short of the analysts' average estimate of $5.37 billion. Sales in the international business lost 8 percent.

For the full year, Staples said it expected sales to fall at a low single-digit percentage rate rather than the low single-digit rise it had forecast in May.

Analysts were expecting sales of $23.64 billion, down from $23.9 billion in the prior year.

Staples forecast earnings of $1.21 to $1.25 a share from continuing operations for this year, down from its May outlook of $1.30 to $1.35 and below analysts' estimates of $1.32.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Maureen Bavdek)

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Staples cuts outlook after weak results abroad

By Dhanya Skariachan

Wed Aug 21, 2013 7:51am EDT

n">(Reuters) - Staples Inc (SPLS.O) reported weaker-than-expected quarterly results on Wednesday on dismal sales in international markets such as Europe and Australia, prompting the largest U.S. office supply retailer to cut its outlook for the year.

Shares of Staples tumbled 12.4 percent to $14.75 in trading before the market opened.

Less customer traffic led to a 6 percent decline in sales at European stores open at least a year. The company also tied some of the weakness to the closure of 49 European stores.

While Staples has done better than rivals Office Depot Inc (ODP.N) and OfficeMax Inc (OMX.N) and has higher market share in the United States, the industry leader has struggled abroad due to economic weakness in Europe that has hurt sales to both corporate customers and individuals.

The results and outlook "while disappointing, were not entirely surprising given the still tepid U.S. macroeconomic environment and even worse conditions internationally," BB&T Capital Markets analyst Anthony Chukumba said in a note.

Chukumba still has "a fairly bullish view" of the industry leader citing its efforts to cut costs and the pending merger of its smaller rivals Office Depot and OfficeMax.

Net earnings fell to $102.5 million, or 16 cents a share in the second quarter that ended on August 3, from $120.4 million, or 18 cents a share a year earlier.

Analysts on average were expecting a profit of 18 cents a share, according to Thomson Reuters I/B/E/S.

Sales fell 2 percent to $5.31 billion, falling short of the analysts' average estimate of $5.37 billion. Sales in the international business lost 8 percent.

For the full year, Staples said it expected sales to fall at a low single-digit percentage rate rather than the low single-digit rise it had forecast in May.

Analysts were expecting sales of $23.64 billion, down from $23.9 billion in the prior year.

Staples forecast earnings of $1.21 to $1.25 a share from continuing operations for this year, down from its May outlook of $1.30 to $1.35 and below analysts' estimates of $1.32.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn and Maureen Bavdek)

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Maersk raises outlook as cost control improve profits

The Carsten Maersk, the first container ship to sail from Japan to Rotterdam since the nuclear disaster at Fukushima, enters Europe's largest port, Rotterdam April 14, 2011.

Credit: Reuters/Jerry Lampen

By Mette Fraende

COPENHAGEN | Fri Aug 16, 2013 6:47am EDT

COPENHAGEN (Reuters) - A.P. Moller-Maersk (MAERSKb.CO) operator of the world's biggest container shipping fleet, raised its annual profit forecast for the business on Friday, helped by tighter cost controls and lower fuel prices.

Maersk shares jumped 6 percent to their highest in 1-1/2 years as investors welcomed a near-doubling of second-quarter earnings at container arm Maersk Line, which generates nearly half of group revenue and is helping counter weakness in the company's oil business.

"The biggest swing factor in Maersk's result is always Maersk Line, and the unit's result today nearly knocks you off your chair," said Sydbank analyst Jacob Pedersen.

"The earnings potential of the shipping unit has surprised many investors today and the share jump certainly does not make the investment any less interesting," Pedersen said.

The Danish company's second-quarter group net profit fell 11 percent to $856 million, against a forecast for a 30 percent drop to $667 million in a Reuters poll of analysts.

While advising caution in calling an end to a shipping sector slump that has weighed heavily on the industry since the 2008 financial crisis, Chief Executive Nils Smedegaard Andersen predicted a measure of stability.

"It is currently our expectation that we can maintain freight rates at the level we have reached now, for the rest of the year," Smedegaard said on a conference call.

Demand for containers has grown as the global economy strengthens gradually but, until recently, container price increases were limited by an influx of new and bigger vessels.

Container rates were under pressure both in the first and second quarters. Maersk pushed up rates on the Asia to Europe route, the world's busiest, by 174 percent on June 28, matching similar increases by rivals such as Germany's Hapag-Lloyd HPLG.UL and China's Cosco Container Lines.

Maersk trimmed its forecast for growth in demand for global seaborne containers this year to 2-3 percent from previously 2-4 percent.

PUSH ON COSTS

Maersk Line, whose vessels make up around 15 percent of the world's container shipping capacity, made a second-quarter net profit of $439 million, significantly exceeding an average analyst forecast of $99 million.

"The very strong cost control program at Maersk Line is helping the company to a large profit and guidance increase," said Alm Brand Markets analyst Jesper Christensen.

Maersk shares traded up 6.3 percent by 0510 ET at 47,560 Danish crowns, against a 0.7 percent increase in the Copenhagen stock exchange's benchmark index .OMXC20CAP.

A 15 percent decline in the average bunker fuel price per tonne and lower bunker consumption in the quarter for Maersk Line helped offset a 13 percent decline in the average container freight rate compared with the same quarter last year.

Total costs for a forty-foot equivalent container unit were cut by nearly 13 percent in the period, mainly driven by vessel network efficiencies, the company said.

Results for the container shipping unit are now seen significantly above those in 2012, against a previous forecast for the results to exceed last year's $461 million, Maersk said.

Net profit for Maersk Oil, the company's second-biggest business unit, tumbled by around 50 percent to $249 million, hit by a lower average oil price and lower production.

Maersk Oil expects a result significantly below 2012, when it made a one-off gain of $1.0 billion from an Algerian tax dispute and divestment gains.

Maersk raised its forecast for group net profit excluding impairment losses and divestment gains to around $3.5 billion from a previous forecast of $2.9 billion. Its kept its forecast for net profit unchanged at $3.3 billion, below last year's $4.0 billion.

(Additional reporting by Ole Mikkelsen; editing by Jason Neely and Tom Pfeiffer)

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Maersk raises outlook as cost control improve profits

The Carsten Maersk, the first container ship to sail from Japan to Rotterdam since the nuclear disaster at Fukushima, enters Europe's largest port, Rotterdam April 14, 2011.

Credit: Reuters/Jerry Lampen

By Mette Fraende

COPENHAGEN | Fri Aug 16, 2013 6:47am EDT

COPENHAGEN (Reuters) - A.P. Moller-Maersk (MAERSKb.CO) operator of the world's biggest container shipping fleet, raised its annual profit forecast for the business on Friday, helped by tighter cost controls and lower fuel prices.

Maersk shares jumped 6 percent to their highest in 1-1/2 years as investors welcomed a near-doubling of second-quarter earnings at container arm Maersk Line, which generates nearly half of group revenue and is helping counter weakness in the company's oil business.

"The biggest swing factor in Maersk's result is always Maersk Line, and the unit's result today nearly knocks you off your chair," said Sydbank analyst Jacob Pedersen.

"The earnings potential of the shipping unit has surprised many investors today and the share jump certainly does not make the investment any less interesting," Pedersen said.

The Danish company's second-quarter group net profit fell 11 percent to $856 million, against a forecast for a 30 percent drop to $667 million in a Reuters poll of analysts.

While advising caution in calling an end to a shipping sector slump that has weighed heavily on the industry since the 2008 financial crisis, Chief Executive Nils Smedegaard Andersen predicted a measure of stability.

"It is currently our expectation that we can maintain freight rates at the level we have reached now, for the rest of the year," Smedegaard said on a conference call.

Demand for containers has grown as the global economy strengthens gradually but, until recently, container price increases were limited by an influx of new and bigger vessels.

Container rates were under pressure both in the first and second quarters. Maersk pushed up rates on the Asia to Europe route, the world's busiest, by 174 percent on June 28, matching similar increases by rivals such as Germany's Hapag-Lloyd HPLG.UL and China's Cosco Container Lines.

Maersk trimmed its forecast for growth in demand for global seaborne containers this year to 2-3 percent from previously 2-4 percent.

PUSH ON COSTS

Maersk Line, whose vessels make up around 15 percent of the world's container shipping capacity, made a second-quarter net profit of $439 million, significantly exceeding an average analyst forecast of $99 million.

"The very strong cost control program at Maersk Line is helping the company to a large profit and guidance increase," said Alm Brand Markets analyst Jesper Christensen.

Maersk shares traded up 6.3 percent by 0510 ET at 47,560 Danish crowns, against a 0.7 percent increase in the Copenhagen stock exchange's benchmark index .OMXC20CAP.

A 15 percent decline in the average bunker fuel price per tonne and lower bunker consumption in the quarter for Maersk Line helped offset a 13 percent decline in the average container freight rate compared with the same quarter last year.

Total costs for a forty-foot equivalent container unit were cut by nearly 13 percent in the period, mainly driven by vessel network efficiencies, the company said.

Results for the container shipping unit are now seen significantly above those in 2012, against a previous forecast for the results to exceed last year's $461 million, Maersk said.

Net profit for Maersk Oil, the company's second-biggest business unit, tumbled by around 50 percent to $249 million, hit by a lower average oil price and lower production.

Maersk Oil expects a result significantly below 2012, when it made a one-off gain of $1.0 billion from an Algerian tax dispute and divestment gains.

Maersk raised its forecast for group net profit excluding impairment losses and divestment gains to around $3.5 billion from a previous forecast of $2.9 billion. Its kept its forecast for net profit unchanged at $3.3 billion, below last year's $4.0 billion.

(Additional reporting by Ole Mikkelsen; editing by Jason Neely and Tom Pfeiffer)

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Samsung to invest in chips, panels as smartphone outlook dims

1 of 3. A Samsung Electronics laptop computer is displayed at a shop in Samsung's main office building in central Seoul July 23, 2013.

Credit: Reuters/Lee Jae-Won

By Miyoung Kim

SEOUL | Fri Jul 26, 2013 12:26am EDT

SEOUL (Reuters) - Samsung Electronics Co Ltd (005930.KS) announced a $1 billion increase in investment on Friday, hoping a strong recovery in semiconductors will make up for weakening smartphone growth as it faces mounting pressure to produce eye-catching new gadgets.

The high-end smartphone market, which Samsung dominates along with Apple Inc (AAPL.O), is slowing and the South Korean giant is struggling to convince investors it can crack the rapidly growing low-end segment, where its rivals include China's Huawei Technologies Co Ltd HWT.UL and ZTE Corp (000063.SZ).

Samsung on Friday reported a 47.5 percent rise in April-June operating profit of a record 9.53 trillion won ($8.54 billion), in line with its estimate.

But profits at its mobile division, which generates two thirds of its total earnings, slipped 3.5 percent from the previous quarter even with the launch of its flagship Galaxy S4 in late April, sparking concerns its mobile growth momentum may have stalled as competition intensifies.

Executives offered little to give investors hope that a new market-shifting breakthrough in high-end smartphone technology is around the corner, fueling uncertainty over a segment which appears to have peaked in the first quarter after driving a series of record profits for Samsung in recent years.

Mobile division profit was still up 52 percent from a year ago but even that fell short of expectations, as slower sales of old models like the S3 and the marketing bill for the S4 took their toll.

"It is clear that the global smartphone market is stalling because of the slowing growth of high-end smartphones and rising competition from lower-priced smartphones," said Ahn Young-hoe, a fund manager at KTB Asset Management, which owns Samsung shares.

"There is no major momentum for Samsung. The key is whether Samsung, which sources smartphone parts in-house unlike Apple, will be able to cut parts costs and increase volume and market share to offset reduced smartphone margins."

Samsung warned that global smartphone sales growth could weaken further in the third quarter, and said it expected stiffer competition due to new product launches. Apple is expected to release the iPhone 5S and a low-end iPhone later this year.

"As we go into a typically strong season for the IT industry, we expect earnings to continue to increase," Samsung said in its earnings statement.

"However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products."

HOT CHIPS

Samsung forecast stronger earnings in the second half thanks in part to its component business, which was staging a solid recovery on the back of soaring prices for semiconductors used in personal computers and mobile devices.

Capital spending in 2013 would increase by more than 1 trillion won to 24 trillion won, and could rise further depending on market conditions. More than 80 percent of that expenditure would be devoted to chips and flat panels such as liquid crystal displays and organic light emitting diode technology, seen as the next big thing in television.

The world's biggest maker of memory chips and televisions said profits from its chip business rose 71 percent to 1.76 trillion won in the second quarter.

Shares of Samsung, worth $172 billion, traded down 0.8 percent on Friday, lagging a 0.1 percent gain in the broader market .KS11.

The stock has lost 14 percent or 32.7 trillion won ($29.4 billion) since early June, hit by a series of brokerage downgrades sparked by fears the high-end smartphone market had reached saturation.

Those concerns eased somewhat on Tuesday when Apple reported stronger-than-expected iPhone sales, even if demand was stoked by aggressively discounted older models. The California-based company still reported a fall in quarterly profit of 22 percent as its margins slipped in the absence of new products.

Research firm Strategy Analytics said Samsung sold 76 million smartphones in the second quarter to take 33.1 percent of the market, widening the gap with second-ranked Apple which saw its share shrink to 13.6 percent.

"I expect Samsung's smartphone profit to stagnate in the current quarter compared to the previous quarter as there are no sensational products in the market. This is a problem facing not only Samsung but Apple and the entire industry," said Samsung Securities Analyst Harrison Cho.

"Apple's new iPhone, which is expected to be released early September, will be nothing new." ($1 = 1112.8500 Korean won)

(Reporting by Hyunjoo Jin; Editing by Stephen Coates)

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Samsung to invest in chips, panels as smartphone outlook dims

1 of 3. A Samsung Electronics laptop computer is displayed at a shop in Samsung's main office building in central Seoul July 23, 2013.

Credit: Reuters/Lee Jae-Won

By Miyoung Kim

SEOUL | Fri Jul 26, 2013 12:26am EDT

SEOUL (Reuters) - Samsung Electronics Co Ltd (005930.KS) announced a $1 billion increase in investment on Friday, hoping a strong recovery in semiconductors will make up for weakening smartphone growth as it faces mounting pressure to produce eye-catching new gadgets.

The high-end smartphone market, which Samsung dominates along with Apple Inc (AAPL.O), is slowing and the South Korean giant is struggling to convince investors it can crack the rapidly growing low-end segment, where its rivals include China's Huawei Technologies Co Ltd HWT.UL and ZTE Corp (000063.SZ).

Samsung on Friday reported a 47.5 percent rise in April-June operating profit of a record 9.53 trillion won ($8.54 billion), in line with its estimate.

But profits at its mobile division, which generates two thirds of its total earnings, slipped 3.5 percent from the previous quarter even with the launch of its flagship Galaxy S4 in late April, sparking concerns its mobile growth momentum may have stalled as competition intensifies.

Executives offered little to give investors hope that a new market-shifting breakthrough in high-end smartphone technology is around the corner, fueling uncertainty over a segment which appears to have peaked in the first quarter after driving a series of record profits for Samsung in recent years.

Mobile division profit was still up 52 percent from a year ago but even that fell short of expectations, as slower sales of old models like the S3 and the marketing bill for the S4 took their toll.

"It is clear that the global smartphone market is stalling because of the slowing growth of high-end smartphones and rising competition from lower-priced smartphones," said Ahn Young-hoe, a fund manager at KTB Asset Management, which owns Samsung shares.

"There is no major momentum for Samsung. The key is whether Samsung, which sources smartphone parts in-house unlike Apple, will be able to cut parts costs and increase volume and market share to offset reduced smartphone margins."

Samsung warned that global smartphone sales growth could weaken further in the third quarter, and said it expected stiffer competition due to new product launches. Apple is expected to release the iPhone 5S and a low-end iPhone later this year.

"As we go into a typically strong season for the IT industry, we expect earnings to continue to increase," Samsung said in its earnings statement.

"However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products."

HOT CHIPS

Samsung forecast stronger earnings in the second half thanks in part to its component business, which was staging a solid recovery on the back of soaring prices for semiconductors used in personal computers and mobile devices.

Capital spending in 2013 would increase by more than 1 trillion won to 24 trillion won, and could rise further depending on market conditions. More than 80 percent of that expenditure would be devoted to chips and flat panels such as liquid crystal displays and organic light emitting diode technology, seen as the next big thing in television.

The world's biggest maker of memory chips and televisions said profits from its chip business rose 71 percent to 1.76 trillion won in the second quarter.

Shares of Samsung, worth $172 billion, traded down 0.8 percent on Friday, lagging a 0.1 percent gain in the broader market .KS11.

The stock has lost 14 percent or 32.7 trillion won ($29.4 billion) since early June, hit by a series of brokerage downgrades sparked by fears the high-end smartphone market had reached saturation.

Those concerns eased somewhat on Tuesday when Apple reported stronger-than-expected iPhone sales, even if demand was stoked by aggressively discounted older models. The California-based company still reported a fall in quarterly profit of 22 percent as its margins slipped in the absence of new products.

Research firm Strategy Analytics said Samsung sold 76 million smartphones in the second quarter to take 33.1 percent of the market, widening the gap with second-ranked Apple which saw its share shrink to 13.6 percent.

"I expect Samsung's smartphone profit to stagnate in the current quarter compared to the previous quarter as there are no sensational products in the market. This is a problem facing not only Samsung but Apple and the entire industry," said Samsung Securities Analyst Harrison Cho.

"Apple's new iPhone, which is expected to be released early September, will be nothing new." ($1 = 1112.8500 Korean won)

(Reporting by Hyunjoo Jin; Editing by Stephen Coates)

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Samsung to invest in chips, panels as smartphone outlook dims

By Miyoung Kim

SEOUL (Reuters) - Samsung Electronics Co Ltd announced a $1 billion increase in investment on Friday, hoping a strong recovery in semiconductors will make up for weakening smartphone growth as it faces mounting pressure to produce eye-catching new gadgets.

The high-end smartphone market, which Samsung dominates along with Apple Inc , is slowing and the South Korean giant is struggling to convince investors it can crack the rapidly growing low-end segment, where its rivals include China's Huawei Technologies Co Ltd and ZTE Corp .

Samsung on Friday reported a 47.5 percent rise in April-June operating profit of a record 9.53 trillion won ($8.54 billion), in line with its estimate.

But profits at its mobile division, which generates two thirds of its total earnings, slipped 3.5 percent from the previous quarter even with the launch of its flagship Galaxy S4 in late April, sparking concerns its mobile growth momentum may have stalled as competition intensifies.

Executives offered little to give investors hope that a new market-shifting breakthrough in high-end smartphone technology is around the corner, fueling uncertainty over a segment which appears to have peaked in the first quarter after driving a series of record profits for Samsung in recent years.

Mobile division profit was still up 52 percent from a year ago but even that fell short of expectations, as slower sales of old models like the S3 and the marketing bill for the S4 took their toll.

"It is clear that the global smartphone market is stalling because of the slowing growth of high-end smartphones and rising competition from lower-priced smartphones," said Ahn Young-hoe, a fund manager at KTB Asset Management, which owns Samsung shares.

"There is no major momentum for Samsung. The key is whether Samsung, which sources smartphone parts in-house unlike Apple, will be able to cut parts costs and increase volume and market share to offset reduced smartphone margins."

Samsung warned that global smartphone sales growth could weaken further in the third quarter, and said it expected stiffer competition due to new product launches. Apple is expected to release the iPhone 5S and a low-end iPhone later this year.

"As we go into a typically strong season for the IT industry, we expect earnings to continue to increase," Samsung said in its earnings statement.

"However, we cannot overlook delayed economic recovery in Europe and risks from increased competition for smartphones and other set products."

HOT CHIPS

Samsung forecast stronger earnings in the second half thanks in part to its component business, which was staging a solid recovery on the back of soaring prices for semiconductors used in personal computers and mobile devices.

Capital spending in 2013 would increase by more than 1 trillion won to 24 trillion won, and could rise further depending on market conditions. More than 80 percent of that expenditure would be devoted to chips and flat panels such as liquid crystal displays and organic light emitting diode technology, seen as the next big thing in television.

The world's biggest maker of memory chips and televisions said profits from its chip business rose 71 percent to 1.76 trillion won in the second quarter.

Shares of Samsung, worth $172 billion, traded down 0.8 percent on Friday, lagging a 0.1 percent gain in the broader market <.ks11>.

The stock has lost 14 percent or 32.7 trillion won ($29.4 billion) since early June, hit by a series of brokerage downgrades sparked by fears the high-end smartphone market had reached saturation.

Those concerns eased somewhat on Tuesday when Apple reported stronger-than-expected iPhone sales, even if demand was stoked by aggressively discounted older models. The California-based company still reported a fall in quarterly profit of 22 percent as its margins slipped in the absence of new products.

Research firm Strategy Analytics said Samsung sold 76 million smartphones in the second quarter to take 33.1 percent of the market, widening the gap with second-ranked Apple which saw its share shrink to 13.6 percent.

"I expect Samsung's smartphone profit to stagnate in the current quarter compared to the previous quarter as there are no sensational products in the market. This is a problem facing not only Samsung but Apple and the entire industry," said Samsung Securities Analyst Harrison Cho.

"Apple's new iPhone, which is expected to be released early September, will be nothing new." ($1 = 1112.8500 Korean won)

(Reporting by Hyunjoo Jin; Editing by Stephen Coates)

View the original article here