Samsung Electronics estimated its second-quarter operating profit at a sharply lower than expected 7.2 trillion won (US$7.11 billion) on Tuesday amid a slowdown in its smartphone business. Samsung says the earnings forecast is the result of the strong Korean currency throughout the second quarter as it appreciated against the dollar, euro and most emerging market currencies.

The company also witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets. And this led to higher inventories for the medium- and low-end smartphones.

The second quarter is a seasonally weak period for smartphone demand in China. Samsung also saw an increase in inventory due to price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market. Weaker demand in the second quarter also led to increased inventory in Europe, where Samsung has a 40 percent market share approximately.

In the cheap smartphone market, Samsung faces an uphill battle against brands such as Xiaomi and Lenovo.

Xiaomi surprised the industry with its $100-level smartphones that were snapped up by fans.

In the case of tablets, sales were sluggish due to a longer replacement cycle than that of smartphones, which is usually between two to three years. In addition, higher shipments of 5-to-6 inch large screen smartphones replaced demands for 7-to-8 inch tablets.

The weak demand for smartphones also affected the System LSI and the display businesses that provide key components and screen technologies.

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

Samsung expects stronger smartphone sales and this will have a positive impact on the company?s display panel businesses. In the memory business, following stable market conditions in the first half, seasonal increase in demand in the third quarter is expected to drive stronger earnings growth.

Samsung devices stolen in Brazil

In related news, a Samsung Electronics Co Ltd factory near Sao Paulo, Bazil, was attacked late Sunday. Workers were held hostage while bandits robbed smartphones, tablets and notebook computers the company valued at about $6.3 million.

"We have cooperated fully with the police investigation that is underway and will do our best to avoid any sort of repeat incident," said Samsung Eletronica da Amazonia Ltda., the manufacturing unit of the Korean electronics giant in Brazil, in a statement.