Samsung warns of 60% profit drop

Korean giant hit hard in smartphone business, but analysts still bullish on overall company health

Tags: Samsung CorporationSamsung Electronics Company
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Samsung warns of 60% profit drop Samsung expects to report sales of 47 trillion won ($44bn), down 20% from the same quarter last year (Getty Images)
By  Tom Paye Published  October 8, 2014

Samsung has issued a warning over its next quarterly financial results, which are expected to report an operating profit of 4.1 trillion won ($3.8bn) for Q3 2014, a 60% decline over the year-ago quarter.

The Korean electronics giant also warned that sales would be down for this quarter as well - the company expects to report sales of 47 trillion won ($44bn), down 20% from the same quarter last year.

The biggest thing affecting Samsung's profits this year appears to be smartphone sales. Over 50% of the company's sales have up until now come from what it calls ‘IT and Mobile'. But the company is being squeezed in the smartphone business - from the top with Apple's premium iPhone range, and from the bottom with strong but cheaper offerings from Chinese vendors such as Lenovo and Huawei.

Analysts point to Samsung's lack of software differentiation at the premium end as the main reason why consumers are looking elsewhere. And when it comes to the mid-range and low-end segments, Samsung is struggling to compete on price versus features.

However, Samsung is not about to exit the smartphone arena any time soon - it still commands a respectable share of the global market, and recently unveiled its latest large-screen flagship, the Galaxy Note 4. What's more, the company is still turning profits in the segment, even if growth is way down.

Analysts suggest that, even in the long run, if Samsung does exit the smartphone market, it would still find other avenues from which to glean profits. The company is a strong player in the smartphone components market, and rumours abound that Apple's next A9 chip will be manufactured by the Korean giant.

Indeed, semiconductors make up just 14% of Samsung's business at the moment, meaning that there is plenty of room for the company to shift its focus a little. With its ability to scale out the production of such components, Samsung would still be heavily involved in the smartphone stack, even if, a long way down the line, it stopped manufacturing the end products.

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