Samsung has long been the giant of the smartphone market, churning out phones like there’s no tomorrow. All good things must come to an end, however, and Samsung could finally be reaching that point. For Q2 2014, Samsung profits dropped 24% from Q2 2013. While the numbers, $51.5 billion in revenue and $7.1 billion in profit, are enormous, they represent Samsung’s slowdown in the smartphone market.
Samsung, though, sent along an explanation for the drop. The Korean Won’s up-and-up improvement is making exports much harder for Samsung. An over-saturation of the market in China and Europe has also led to a large drop in demand for Samsung devices. That issue is combined with Samsung’s struggle to gain a foothold in China. Samsung’s 3G Chinese devices aren’t selling well, because most Chinese consumers are holding out for the next-gen 4G LTE devices. On top of that, Chinese companies like Xiaomi are taking off and pushing out Samsung.
Those problems have led to some other expenses for Samsung. For example, marketing budgets have seen an increase in attempts to move the surplus of devices. The final issue is that the drop in demand has led to slowdowns and profit issues in some of Samsung’s component arms that work to manufacture and create parts for the phones. In short, Samsung has some hills to climb after this quarter. Nonetheless, Samsung noted that it’s cautiously expecting an increase next quarter. This will most likely be due to a new Galaxy Note device to boost demand.
What do you think could help Samsung regain demand?Show Press Release
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 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.
With the release of new smartphone devices in the second quarter, Samsung launched various promotions to reduce existing inventories in sales channels and this increased the company’s marketing expenditure compared to the previous quarter.
The weak demand for smartphones also affected the System LSI and the display businesses that provide key components and screen technologies.
The company cautiously 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 will continue to expand its B2B businesses and looks forward to exceeding consumers’ expectations by offering the most innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices.