An October 30th research report from BMO Capital Markets focuses on Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935). In the report, BMO analysts Tom Long and Ambrish Srivastava dig into the Korean tech giant’s third quarter earnings, and highlight the issues impacting the firm. BMO currently rates Samsung as Market Perform, and reduced its target price from 1200 to 1100 won per share, just below its October 29th price of 1130 won.

Samsung 3Q Earnings

Breakdown of Samsung third quarter earnings report

Samsung reported weak September-quarter results earlier this week. The top line figures were in line with the  numbers the company preannounced earlier this month. Total revenue came to KRW 47.5 trillion, down 20% year over year. Operating profits clocked in at KRW 4.1 trillion, very close to the the preannounced range of KRW 3.9-4.3 trillion, but well below BMIO’s previous KRW 6.7 trillion estimate. The company’s net income of KRW 4.2 trillion was significantly less than BMO’s KRW 5.6 trillion estimate, due to weaker handset earnings (partly offset by a lower tax rate). The firm’s profitability also shrank from the 13.7% margin reported in the second quarter.

Samsung 3Q Earnings

The mobile segment was a disappointment, as lower volumes combined with plummeting ASP stressed the operating model and hit profitability. For the semiconductor segment, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) reported revenues of KRW 9.89 trillion, up 1% quarter over quarter compared to BMO’s estimated KRW 10.11 trillion, while profitability was KRW 2.26 trillion, at 22.9% of sales, somewhat above BMO’s KRW 2.07 trillion projection. Long and Srivastava reduced their 2014/2015 EPS estimates from KRW 165.23k / KRW 147.79k to KRW 148.63k / KRW 115.22k.

Weakness in the mobile segment

Of note, most of the downside to Samsung’s 3Q numbers was driven by weakness in mobile, and the BMO analysts expect the problems here to continue into 2015. They argue that Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) will “face unprecedented demand for iPhones in the large-screen category” at the high end of the market. At the low end, they say that, “competitive pressure will likely continue in China, where the 4G market has been ramping through 2H and share is consolidating around the largest local players.”

Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) shares are up over 3% in trading in the U.S. on Thursday.