Samsung Electronics forecasts 60% fall in quarterly profit

[Dari]

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.

Actually, that's not true. Samsung is a vertical market so their profit/loss has a multiplier effect since everything comes from Samsung. Heavy marketing and mediocre products are leading to less profit per phone. That means that there are losses in other parts of the Samsung kingdom. Why? Because they depend on Samsung Mobile to make money. The other manufacturers, like Apple, can squeeze their suppliers. Samsung cannot squeeze itself.

EDIT: I think Samsung is trying too damn hard to be like Apple, but they just can't because they (choose to) have so many direct competitors. They are everywhere and are getting beaten everywhere. I saw a Samsung store in SoHo last week, a couple of blocks from the Apple store. (There was no Galaxy Note 4. When I asked about this the lady suggested I go to Best Buy). Also, there marketing is so Apple-obsessed it's bordering on sad and pathetic. But their real competition are against the countless Android OEMs in various country that are focused on a particular region.

 

[dawheat]

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.

Clearly the pie is not shrinking, but profits in the Android space are. So this does not imply that Samsung is necessarily losing global market share (though they probably are), but more that ASPs are shrinking. This is good for consumers on one hand in that we get devices at a lower price (e.g. OPO) but as others have pointed out, a race to the bottom doesn't really benefit anything but true commodities.

What none of us want is the entire Android market to follow the PC race to the bottom - resulting in an ocean of plastic crapboxes and it taking Apple to re-create the premium experience (aluminum MCP).

If this means we get a lot of Moto Gs at the low end and truly differentiated high end phones at the other end (Note 4, Z3) then that's ok. The danger is the market shifts overly to the low end and OEMs can't justify premium lines due to low sales.

 

[drbrock]

If Samsung would abandon Touchwiz I would be on board with them. It is a terrible android theme. One of the main reasons I did not go with the Note 4. Did not want to deal with putting another rom on it. Love the hardware and general design.

 

[kpkp]

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.

If the big players (Samsung, Apple - theoretically) are selling less, that frees resources from the supply chain for the small players and could also lead to reduced cost of the parts. Samsung semiconductors starts sending more parts outside of the conglomerate, that gives the small players the ability to compete with the big ones (there were numerous reports about small players struggling to meet the demand because they couldn't buy enough parts from the supply chain). You are almost arguing that a monopoly would be good for the small players.
How are they going to make money is up to them, look at Xiaomi, they got creative and are doing good, with minimal margins on hardware.

 

[Dari]

If the big players (Samsung, Apple - theoretically) are selling less, that frees resources from the supply chain for the small players and could also lead to reduced cost of the parts. Samsung semiconductors starts sending more parts outside of the conglomerate, that gives the small players the ability to compete with the big ones (there were numerous reports about small players struggling to meet the demand because they couldn't buy enough parts from the supply chain). You are almost arguing that a monopoly would be good for the small players.
How are they going to make money is up to them, look at Xiaomi, they got creative and are doing good, with minimal margins on hardware.

What components are the smaller players struggling with? I think that there is healthy competition when it comes to components and many OEMs, big and small, learned the hard way on how Samsung works. Samsung screwed over the small guys when Apple ramped up orders in the early days of the iPhone. Then Samsung screwed Apple by copying their designs and seeing what direction Apple was going by looking at their purchase orders. In the end, these OEMs were basically subsidizing Samsung's business. It's a business model that has worked wonders for them while hurting their frenemies so I doubt many are happy to jump into bed with a rival like Samesung.

 

[golem]

If the big players (Samsung, Apple - theoretically) are selling less, that frees resources from the supply chain for the small players and could also lead to reduced cost of the parts. Samsung semiconductors starts sending more parts outside of the conglomerate, that gives the small players the ability to compete with the big ones (there were numerous reports about small players struggling to meet the demand because they couldn't buy enough parts from the supply chain). You are almost arguing that a monopoly would be good for the small players.
How are they going to make money is up to them, look at Xiaomi, they got creative and are doing good, with minimal margins on hardware.

That's only true if Samsung is losing market share because buyers are moving to other premium phones, those other OEMs could start to make a profit. But what if it's because they are moving to cheaper phones? If Samsung isn't as profitable with it's size/purchasing advantage how could the other OEMs compete? They'll get killed by the chinese OEMS.

 

[dawheat]

How are they going to make money is up to them, look at Xiaomi, they got creative and are doing good, with minimal margins on hardware.

Does Xiaomi report earnings? I'm curious what their profitibility is from hardware - I imagine its peanuts compared to Apple/Samsung and that they're selling close to cost. From software, I recall seeing a number like 100million/year or so - again peanut change.

I'd equally hate for Android to become Google + only Chinese OEMs who are dependent on Google for driving all innovation in the Android space.

 

[Sooon]

Total shipments are down slightly YoY (down 2%), while up marginally over the last quarter, but revenue is way down. Their ASPs are being crushed by poor sales at the high end.

 

[CptObvious]

Smartphones becoming commoditized just like the TV and PC markets. The gulf between low end and high end shrinks every generation. I got a first gen Moto G and it'll be all the phone I'll need for the foreseeable future. Same with my 3 year old TV and PC, and my cameras and tablet.

Samsung releases phones like crazy but after a while they become undifferentiated objects to the average buyer.

 

[Denithor]

I too got a Moto G and was very disappointed after a couple months of use. I could see these weird lines or grid on the screen at certain angles, it was just too thick and clunky compared to the higher end phones. Switched to an HTC One (M7) very recently and couldn't be happier. I would have gone with an M8 but it was just too big for me, coming from an iPhone 4S and the Moto G. Plus I was able to get a nearly new M7 on eBay for $200...kinda hard to argue numbers like that.

 

[senseamp]

Commodity hardware, which is what Android smartphones are, should be making commodity profit margins, just like televisions, DVD players, PC's, etc. For smartphones, that should price them around $300 off contract. It's good for us Android users that consumers are rejecting Samsung's phones at $600 price range. It means that Samsung will have to get with the program and compete on price, if it wants to maintain the volumes. And since it's also building components, it needs to maintain volumes to keep their component business utilized.

 

[dawheat]

Commodity hardware, which is what Android smartphones are, should be making commodity profit margins, just like televisions, DVD players, PC's, etc. For smartphones, that should price them around $300 off contract. It's good for us Android users that consumers are rejecting Samsung's phones at $600 price range. It means that Samsung will have to get with the program and compete on price, if it wants to maintain the volumes. And since it's also building components, it needs to maintain volumes to keep their component business utilized.

Or build differentiated products like the Note 4 - superior AMOLED display, digitizer with highly sensitive pen, true multi-tasking, high quality in-hand feel with removable battery and microSD. What they need to do is build more products like this and not mediocre ones like the S4. The S5 was OK but there was still a lot better they could have done.

Samsung can continue to complete at the high end and charge a premium, but you have to get something over the commodity products.

 

[Bateluer]

Shrug, Samsung has been using the same cheap plastic body and chassis since the Galaxy S3. See if this motivates Samsung to shake things up a little with the S6 next spring.

 

[jpeyton]

They need a more focused product line, and could probably trim a little payroll fat in the process...

...but they still made almost $4 billion profit over the last three months. That's incredible considering their flagship phone is the S5, which is a flaming-turd design-wise. The people who designed the S5 should be first on the chopping block.

Their new design direction (Galaxy Alpha/Note 4) is their best yet, and I expect their sales to hold steady in the wake of renewed competition.

If the S5 looked like a slightly larger Galaxy Alpha, we wouldn't be having this conversation right now.

 

[corkyg]

According to business analysts, the main problem for Samsung is the rapid rise of Chinese smartphone makers such as Xiaomi. They have recently captured a quick 5% of the market with low cost products . The developed market is fartily well saturated, and these low cost phones are taking over the less developed world market. Xiaomi wins and Samsung loses. The less developed world is where the biggest market growth is.

 

[Brian Stirling]

There's a number of factors at work here that explain the stock loss.

First, the market as a whole is more-or-less saturated so growth has gone away. We're in a replacement market, not a growth market.

Second, Samsung ran to a huge lead in the Android world and are now losing market share to the Chinese makers in China.

Third, Apple has entered the big phone and phablet markets and will eat a fare share of that market because -- Apple.

Fourth, Samsung went on an innovation tear a for a few years that saw them create market segments that didn't exist before like the phablet, but they appear to be cutting back on this in the last year plus.

Fifth, as has been mentioned, Samsung doesn't just assemble devices from other peoples components so they lose out on component fabrication as well.

Still, Sammy isn't going to go out of business anytime soon. OTH, it does appear that Apple's new product line is, among other things, a direct shot at Samsung and targets the two mobile phone products that Samsung made bank on.


Brian

 

[Mopetar]

If the big players (Samsung, Apple - theoretically) are selling less, that frees resources from the supply chain for the small players and could also lead to reduced cost of the parts.

This assumes that they're selling fewer devices (not necessarily true) and not that the margins are being reduced. Since the only thing we know for fact is that Samsung's profitability is down, anything else is speculation. That assumption doesn't necessarily hold and neither does anything built on top of it.

Samsung semiconductors starts sending more parts outside of the conglomerate, that gives the small players the ability to compete with the big ones

The small players aren't going to order parts at the same volume the larger companies can demand. At best they can get some cheap scraps or left-overs, but they cannot get the same parts at the same cost unless the company selling them doesn't do volume discounts, which is typically not the case.

You are almost arguing that a monopoly would be good for the small players. How are they going to make money is up to them, look at Xiaomi, they got creative and are doing good, with minimal margins on hardware.

I'm not arguing that a monopoly is good for small players. I'm arguing that Samsung becoming less profitable provides no indication about the effects on smaller companies. You can't use that information to logically conclude that it's either good or bad without making a lot of assumptions.

Xiaomi is likely able to do well because they're a Chinese company so they're going to have a reduced cost because it's less expensive to operate in China. That and they can blatantly disregard any and all IP laws so long as they stay within China.

 

[Anubis]

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.

basically that and we have gotten to near full saturation, everyone has a phone now, "NEW" people are rare and its just people upgrading on a 1 or 2 year cycle

 

[kpkp]

This assumes that they're selling fewer devices (not necessarily true) and not that the margins are being reduced. Since the only thing we know for fact is that Samsung's profitability is down, anything else is speculation. That assumption doesn't necessarily hold and neither does anything built on top of it.

Of course we are speculating, if we had all the data there would be nothing to talk about. But is speculation based on observations and there isn't anything suggesting that Samsung drastically lowered the margins on their devices.

The small players aren't going to order parts at the same volume the larger companies can demand. At best they can get some cheap scraps or left-overs, but they cannot get the same parts at the same cost unless the company selling them doesn't do volume discounts, which is typically not the case.

That's true, but if there are more left-overs it is easier to get them and easier to get the price down (still not saying they would get them cheaper then the big ones).

I'm not arguing that a monopoly is good for small players. I'm arguing that Samsung becoming less profitable provides no indication about the effects on smaller companies. You can't use that information to logically conclude that it's either good or bad without making a lot of assumptions.

I was assuming Samsung was selling less, so that leaves more of the market for others, but yeah we are talking assumptions again, but is all I have and you can argue if they are reasonable or not (i think they are ()). I will be surprised if sales aren't a big part of it, but I could be wrong.

Xiaomi is likely able to do well because they're a Chinese company so they're going to have a reduced cost because it's less expensive to operate in China. That and they can blatantly disregard any and all IP laws so long as they stay within China.

It's more then China... They are also selling devices with Google services outside China.
I do not know in what state are the IP laws in places like India but I am surprised that other goverments even enforce the IP laws, since ignoring them did so good to China economy.

 

[kpkp]

basically that and we have gotten to near full saturation, everyone has a phone now, "NEW" people are rare and its just people upgrading on a 1 or 2 year cycle

How does Apple avoid that, do they make crappy phones?

 

[Red Storm]

People have been declaring the market is saturated for a couple of years now. Is there definitive proof of it?

How does Apple avoid that, do they make crappy phones?

Apple is the only vendor for iOS phones. Their walled garden keeps their users in, and also keeps their competitors out. Plus they do stuff like keep 16GB and make 64GB the next storage size jump which gets people to give them an extra $100. From a business sense it's a smart move, from a consumer sense it's called being ripped off, but people like their gadgets so they pay anyway.

 

[kpkp]

Apple is the only vendor for iOS phones. Their walled garden keeps their users in, and also keeps their competitors out. Plus they do stuff like keep 16GB and make 64GB the next storage size jump which gets people to give them an extra $100. From a business sense it's a smart move, from a consumer sense it's called being ripped off, but people like their gadgets so they pay anyway.

Yeah, I made a similar argument in a previous post, but the argument here was that, Galaxy S phones for a year or two ago are still good enough, but can't the same reasoning be applied to iPhones, making the argument invalid? Since Apple isn't loosing phone sales yet.

Or are Apple costumers more irrational (for a lack of a better word) when it comes to their phone purchases.

 

[corkyg]

How does Apple avoid that, do they make crappy phones?

No - they make more expensive phones.

 

[rbk123]

who's gonna buy a $700 phone when a $350 does the same thing?

You just questioned the intelligence of the entire Apple-legion.

 

[openwheel]

iPhone is a fashion statement for the masses, while a One+1 is a fashion statement for a few geeks. Big difference. It's not cheap to be a hipster these days.