Samsung Electronics forecasts 60% fall in quarterly profit

[Dari]

Things don't look so good for Samsung. Profits are dropping and smartphone market is over-saturated. Worse, Apple has a stranglehold on Japan and America while Chinese OEMs have a similar grip in China. I have no idea about Europe. I don't see things getting any better. Ever. Fierce competition at the top and an even more severe bloodletting at the bottom means there is nowhere to hide. Worse, Tizen has failed to take off. With more programmers than Google, you'd think they would have something good to show but no.

The primary concern I have is this: considering Samsung Electronics is a major major part of Samsung, and Samsung is a huge player in the Korean economy, these falls in profits could quickly turn to losses if nothing changes. That cannot be good for the overall economy.

link

Samsung Electronics forecasts 60% fall in quarterly profit
Samsung Electronics has forecast a 60% fall in quarterly operating profit from a year ago because of slowing Galaxy smartphone sales.
The world's biggest mobile phones and TV maker said it expects an operating income of 4.1tn won ($3.8bn; £2.5bn) for the three months to September.
That is below analysts' expectations for earnings of 5.2tn won.
The South Korean company will publish full financial results later this month.
LAST UPDATED AT 07 OCT 2014, 06:29 ET Samsung Electronics one month chart
price change %
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Samsung's mobile division, its biggest business, has been struggling to maintain its dominance against rivals such as Apple and Chinese smartphone-makers Xiaomi and Lenovo.
Its flagship Galaxy smartphone line has been losing market share to cheaper models that also have large screens and multiple features.
The firm said quarterly sales amounted to 47tn won, which was below analyst estimates for 50.3tn won.
"Smartphone shipments increased marginally amid intense competition," Samsung said in a statement.
"However, the operating margin declined due to increased marketing expenditure and lowered average selling price."
The company also said it is "preparing new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid-to-low end smartphones".
Samsung shares rose about 1.6% in Seoul despite the weak profit outlook.
Analysis: Rory Cellan-Jones, BBC technology editor
Samsung has been the standout success of the smartphone era - certainly in terms of building market share, with the South Korean firm overtaking Nokia to become the world's leading phone manufacturer.
It is still holding on to the number one spot, but competition at both the top and budget ends of the market is now exerting an intense pressure on its profits.
Samsung still has around 25% of the market, down from 33% a year ago, but a trio of Chinese firms Lenovo, Huawei and Xiaomi have rapidly grabbed a big slice. It was the whole Galaxy range which propelled Samsung's profits ever higher and phones like the latest Galaxy Note 4 still get glowing reviews.
But it hasn't managed to pull off the same trick as Apple, which continues to charge luxury prices and make chunky profits on its new phones.
The recent launch of the iPhone 6 and 6 Plus is a case in point - analysts say Apple's profit margins have come down but are still above 40%.
Samsung is struggling to keep prices up at the high end, and with smartphones now becoming a commodity product it's failing to match its Chinese rivals' prices for similar phones. The competition is only going to get more intense - and it isn't clear how the Korean giant can respond.
Chip plant
Samsung announced on Monday that it would spend about $15bn on a new semiconductor plant in South Korea, to meet the growing demand for memory chips.
It is set to be the biggest single investment in a chip factory, and construction will begin in the first half of next year with operations due to start in 2017.
Samsung is a major chip supplier to other electronics firms, including major rival Apple.
Samsung is also facing some pressure at its consumer electronics division, which makes televisions, air conditioners and other appliances.
Sales and overall profit are forecast to have dropped because currency fluctuations made Japanese-made rival products cheaper to buy.
The Korean won strengthened about 3.5% against the Japanese yen in the third quarter.

 

[Lyfer]

They should get into the Kimchi business.

 

[PricklyPete]

I don't see things improving for them.

 

[luv2liv]

xaomi will kill all the phone manufacturer.
who's gonna buy a $700 phone when a $350 does the same thing?

 

[kpkp]

Am I the only one who thinks that's good news for (other) Android OEMS and ecosystem in general. This leaves money on the table to be grabbed by other OEMS and more healthy competition the better. Having one dominant player doesn't serve no one and maybe it's time for "the public" to realize that Android phone doesn't mean Galaxy phone, but the choice is much wider then that.

On a personal note, it gives me hope, when I see big marketing $ failing.

 

[dawheat]

They've let their opportunity slip away the previous 2 years to actually build long lasting brand loyalty. The S4 especially frittered away that chance by being mediocre.

That being said - if Samsung is at risk, HTC/Sony/LG/etc are doomed. It's only compared to Apple that Samsung's profits look bad. Even with this 60% drop, Samsung's smartphone profits will still exceed everyone else's combined, and then probably multiplied by 2 or 3.

Samsung still has about 30% of the US market, a larger part of the EU market, and breadth everywhere else. The days of record profits are gone, but if they continue to put out phones at the level of the Note 4, profits will still be in the billions. Just never in the tens of billions again.

 

[Mopetar]

Am I the only one who thinks that's good news for (other) Android OEMS and ecosystem in general. This leaves money on the table to be grabbed by other OEMS and more healthy competition the better. Having one dominant player doesn't serve no one and maybe it's time for "the public" to realize that Android phone doesn't mean Galaxy phone, but the choice is much wider then that.

On a personal note, it gives me hope, when I see big marketing $ failing.

I don't think it necessarily means good things for anyone else. If Samsung is getting squeezed, it probably means that everyone else is as well. HTC just got back to profitability (granted they were making terrible phones for a while so it's not hard to see why they had problems) and a lot of the other manufacturers have never had much if any profits at all.

Samsung makes a lot of their own components so they can build a similar device for a lower cost, which translates into better profits. However, if their profitability is tanking, it likely means that a lot of the other manufacturers are going to get hit hard as well. The only scenario in which that doesn't happen is if those other manufacturers are selling premium-level devices at Samsung's (or Apple's) expense.

 

[blairharrington]

Good. The S5 was an uninspired effort. They admit TouchWiz is a bad skin. They really need a new start with the S6 and TouchWiz. Get people excited again. Try to do something different, better, with your hardware. Limit the heaviness and pointlessness of TouchWiz.

The squeeze from Chinese OEM's is probably out of their hands regardless of what they bring to the market.

Now that Apple has a large screen option and a phablet they will lose sales to them, which even these numbers don't reflect.

 

[s44]

They've let their opportunity slip away the previous 2 years to actually build long lasting brand loyalty. The S4 especially frittered away that chance by being mediocre.

You have it quite backwards. Profits are down substantially because no one needs to upgrade any more. The S3 and S4 were too good.

Android OEMs could see an explosion of profits if they withheld vital features for years and then offered something much later as Apple just did... Unfortunately for them and fortunately for us, there's no ecosystem lock-in between manufacturers to protect them from each other if they try that.

 

[desura]

This could be a big ugly fall. There was an article recently about Samsung's bloated headcount...

http://arstechnica.com/gadgets/2014...ees-than-google-apple-and-microsoft-combined/

They employ over 40k software engineers. And they make the lousiest implementation of Android that is out there.

With the bad blood with Apple causing Apple to shift production elsewhere, and with Samsung's lousy first-party efforts, plus the rise of Chinese OEM's, I think Samsung is going to fall hard. In my experience with Samsung products, the only commendable part is the basic material science that goes into making the AMOLED panels. Everything else really sucks, from the software skin design to the hardware design choices (putting ultra sensitive capacitive buttons on the bezel of a tablet is an example of Samsung's tendency to make stupid decisions)

 

[poofyhairguy]

I think this is why the Note 4 uses better materials- Samsung sees the writing on the wall. Either go premium or go home.

 

[WelshBloke]

I don't think it necessarily means good things for anyone else. If Samsung is getting squeezed, it probably means that everyone else is as well. HTC just got back to profitability (granted they were making terrible phones for a while so it's not hard to see why they had problems) and a lot of the other manufacturers have never had much if any profits at all.

Samsung makes a lot of their own components so they can build a similar device for a lower cost, which translates into better profits. However, if their profitability is tanking, it likely means that a lot of the other manufacturers are going to get hit hard as well. The only scenario in which that doesn't happen is if those other manufacturers are selling premium-level devices at Samsung's (or Apple's) expense.

This pretty much.

We're probably seeing the effect of the big Chinese manufacturers entering the market.

It'll probably end up with some of the old manufacturers going bust or taken over.
We'll end up with a few big Chinese manufacturers, Samsung and LG as android OEMs.

 

[Commodus]

I don't think it necessarily means good things for anyone else. If Samsung is getting squeezed, it probably means that everyone else is as well. HTC just got back to profitability (granted they were making terrible phones for a while so it's not hard to see why they had problems) and a lot of the other manufacturers have never had much if any profits at all.

Samsung makes a lot of their own components so they can build a similar device for a lower cost, which translates into better profits. However, if their profitability is tanking, it likely means that a lot of the other manufacturers are going to get hit hard as well. The only scenario in which that doesn't happen is if those other manufacturers are selling premium-level devices at Samsung's (or Apple's) expense.

It's good for Chinese manufacturers like Xiaomi, Huawei and Coolpad. With that said, their growth is likely to be inherently limited -- the Chinese government's spying means that some countries will either discourage using their products or even ban them outright. That and Apple would rightly sue Xiaomi for copying the very second it started officially selling phones in the US.

If there's any overall benefit, it'll be for diversity in the smartphone space (both for Android and other ecosystems). As much as some diehard Android fans dream of a total Google monopoly where all competition dies, the truth is that's not healthy for the industry. Samsung's apparent decline could allow for more variety in interfaces and operating systems. You may not like Apple or Microsoft, but you need them to be healthy so that Google doesn't rest on its laurels... and so that there are products which Google would never consider due to its business model, such as services that genuinely respect your privacy.

 

[kpkp]

I don't think it necessarily means good things for anyone else. If Samsung is getting squeezed, it probably means that everyone else is as well. HTC just got back to profitability (granted they were making terrible phones for a while so it's not hard to see why they had problems) and a lot of the other manufacturers have never had much if any profits at all.

Samsung makes a lot of their own components so they can build a similar device for a lower cost, which translates into better profits. However, if their profitability is tanking, it likely means that a lot of the other manufacturers are going to get hit hard as well. The only scenario in which that doesn't happen is if those other manufacturers are selling premium-level devices at Samsung's (or Apple's) expense.

If the profitability of products goes down, the costumer wins, if Samsung realizes that they can't only ride the marketing, the costumer wins, ff Samsung has a smaller market share the costumer wins... If OEMs squeeze OEMs the costumer wins.

The so called premium (600-1000$) devices have less and less premium features beside the price. We are starting to see devices with a feature set that comparable to the premium class for half the price.

The phones market is so big that there is no reason for big profit margins on devices. Apple can (will try to) sustain them with their walled garden, smoke&mirrors and the fashionable brand, but on Android the competition will be fierce and profits will be small and that's a good thing for costumers, for everyone actually.

 

[PowerYoga]

If only touchwiz isn't shit...

 

[Commodus]

The phones market is so big that there is no reason for big profit margins on devices. Apple can (will try to) sustain them with their walled garden, smoke&mirrors and the fashionable brand, but on Android the competition will be fierce and profits will be small and that's a good thing for costumers, for everyone actually.

Eh, I'm not so sure. Look at what happened in PCs (which seems to be the model phones are following). Remember how that "race to the bottom" mentality ruined the average PC? Dell went from a largely quality-focused brand to the epitome of everything that is wrong with Windows computers: long ship times, poor build quality and poor tech support. And many of the companies that sacrificed margins for market share are reaping the "rewards." Sony quit the PC business, Toshiba is scaling it back, HP is splitting into two to prevent PCs from dragging down its enterprise group, Dell went private with the help of $2b in Microsoft "please save Windows" money and Acer just keeps shrinking.

Don't get me wrong, it's true that the cost of what you need for a good smartphone experience costs less and less. The Moto G is a great example of a quality phone for less than $200. It's just that we shouldn't be too quick to encourage companies to throw out long-term sustainability for the sake of saving a few bucks at the store. Profit is what lets a company research new products and stick around when it runs into tough times.

 

[kpkp]

Eh, I'm not so sure. Look at what happened in PCs (which seems to be the model phones are following). Remember how that "race to the bottom" mentality ruined the average PC? Dell went from a largely quality-focused brand to the epitome of everything that is wrong with Windows computers: long ship times, poor build quality and poor tech support. And many of the companies that sacrificed margins for market share are reaping the "rewards." Sony quit the PC business, Toshiba is scaling it back, HP is splitting into two to prevent PCs from dragging down its enterprise group, Dell went private with the help of $2b in Microsoft "please save Windows" money and Acer just keeps shrinking.

Don't get me wrong, it's true that the cost of what you need for a good smartphone experience costs less and less. The Moto G is a great example of a quality phone for less than $200. It's just that we shouldn't be too quick to encourage companies to throw out long-term sustainability for the sake of saving a few bucks at the store. Profit is what lets a company research new products and stick around when it runs into tough times.

Well, if a few companies struggles means a lot more people can afford a pc/phone, let them struggle. Sometimes people on tech forums get to attached to this brands and don't see the benefit that brings.

I think Dell would still be "quality-focused" if that would be sustainable for them, the market has spoken, even if we "tech people" do not always agree (example: Samsung dominating Android). But as tech people we will find a "workaround" or a niche product.

 

[Mopetar]

If the profitability of products goes down, the costumer wins, if Samsung realizes that they can't only ride the marketing, the costumer wins, ff Samsung has a smaller market share the costumer wins... If OEMs squeeze OEMs the costumer wins.

Samsung doesn't really give two damns what or what isn't good for consumers. Samsung only cares about their own bottom line. Consumers can watch out for their own interests as far as Samsung is concerned.

Also Samsung having a smaller market share does nothing to suggest that consumers are better off. If Samsung starts reducing quality to keep their profits up, would you still consider that a win for consumers?

 

[Red Storm]

Samsung doesn't really give two damns what or what isn't good for consumers. Samsung only cares about their own bottom line. Consumers can watch out for their own interests as far as Samsung is concerned.

Also Samsung having a smaller market share does nothing to suggest that consumers are better off. If Samsung starts reducing quality to keep their profits up, would you still consider that a win for consumers?

I would consider that a win. When the undisputed leader in profits starts to lose some, that means all the smaller players can eat up more of the pie. More serious competitors = win for us consumers.

 

[Mopetar]

I would consider that a win. When the undisputed leader in profits starts to lose some, that means all the smaller players can eat up more of the pie. More serious competitors = win for us consumers.

You make the assumption that the pie itself has not shrunk or that it is being divided up among smaller competitors.

Imagine if all of Samsung's losses went towards Apple's profits. Would you still consider that a victory for the smaller players? That itself assumes that the total profit earned collectively has not reduced, which isn't necessarily good or bad for consumers, merely just bad for the manufacturers who are losing the most.

 

[Red Storm]

You make the assumption that the pie itself has not shrunk or that it is being divided up among smaller competitors.

Imagine if all of Samsung's losses went towards Apple's profits. Would you still consider that a victory for the smaller players? That itself assumes that the total profit earned collectively has not reduced, which isn't necessarily good or bad for consumers, merely just bad for the manufacturers who are losing the most.

Well unless someone here knows stuff the rest of us don't, you have to make the best assumption. And all of Samsung's losses going to Apple doesn't make any sense, so I'm not concerned about it.

 

[kpkp]

You make the assumption that the pie itself has not shrunk or that it is being divided up among smaller competitors.

Imagine if all of Samsung's losses went towards Apple's profits. Would you still consider that a victory for the smaller players? That itself assumes that the total profit earned collectively has not reduced, which isn't necessarily good or bad for consumers, merely just bad for the manufacturers who are losing the most.

I didn't see any data suggesting that the Android market was shrinking, far from it.... More small competitors is a win too.

When the market is growing the money doesn't disappear, it just moves. Apple is doing great convincing people that their products are premium and worth more. For them is easier since they try to distance themself from any direct competition. That's a great strategy as long people believe your products are premium, fashionable, just work, magical, best in class... But if that is gone or even worse, becomes a burden (lock-in, overpriced, uncool....), the fall could be hard.

 

[Suspicious-Teach8788]

That's fine. I hope Samsung realizes that competition amongst the Android OEMs is real and they need to step up their game too. Still--Samsung commands an amazing lead and they're the go-to Android OEM when anyone's looking for a phone. It's practically GS5 vs iPhone 6 and never LG G3 vs iPhone 6 unless you're talking to enthusiasts.

 

[Mopetar]

Well unless someone here knows stuff the rest of us don't, you have to make the best assumption.

Why must one make the "best" assumption? And "best" from which point-of-view?

The only assumption that can be guaranteed is that this is bad for Samsung. Claiming that it's necessarily good for their competitors or consumers isn't something that logically holds.

I didn't see any data suggesting that the Android market was shrinking, far from it.... More small competitors is a win too.

No one claimed that market was shrinking. The number of devices is different from the amount of profit being generated based on those sales.

Also, it seems that if Samsung is getting crunched, it's going to hurt the smaller competitors. Guess who can afford smaller margins and the infrastructure to sell enough phones to still make a reasonable absolute amount of cash on smaller margins. It's not the smaller competitors. Unless they're capable of doing something that Samsung isn't, they're less likely to thrive in a market where Samsung is struggling.

 

[RagingBITCH]

You make it sound like they are about to go under...hardly.