Samsung’s Profits Take a Dive in the Fourth Quarter

Samsung's Profits Take a Dive in the Fourth Quarter

Samsung Electronics has long been the global leader in smartphone sales through strong marketing and supply chain management. But now, the South Korean electronics giant is adjusting to the uncomfortable prospect of lower profits in the fourth quarter.

Samsung said it expects a 29 percent drop in its quarterly operating profit from the previous year, to 10.8 trillion won ($ 9.7 billion). The company, which publishes its final results later this month, expects a loss of money due to declining demand for smartphones and other devices as well as increased competition in the handset market. Memory chips are the largest segment of Samsung’s profits, but demand has also declined for the company’s semiconductors, which are used in everything from telephones to servers. Adding additional pressure, Chinese screen developers are also reducing Samsung’s OLED display sales. The coming year will inevitably require some agility on the part of the company, especially as the component boom it has experienced in recent years has faded, said Bryan Ma, vice president of the company.

Decline In Smartphones Sales

Samsung reported a net profit of 13.15 trillion won in the third quarter, compared to just over 11.19 trillion won in the same period last year. The company also said its third-quarter sales were 65.46 billion won. While most of Samsung’s business units, from memory to screens, remained profitable in the third quarter, the one that makes smartphones has seen a decline in sales and profits, the company said. Globally, smartphone shipments remained stable due to lower sales of low-end products and profits have also gone down because of rising promotional costs and the negative impact of exchange rates, according to company representatives. According to IDC statistics, Samsung ranks first in the global smartphone market with an estimated 20.3% market share in the third quarter. The Chinese Huawei was number 2 with a market share of 14.6%.

Global Smartphone Production Down

The global smartphone production volume of all brands is expected to reach 1.41 billion units this year, down to 3.3 percent from 2018, the Taipei-based TrendForce announced recently. The market research company said the lack of revolutionary features or specifications had deterred consumers from replacing handsets. This downward trend will be felt on several Samsung units, according to technical experts. The phone screens of the subsidiary Samsung Display, in particular, will face a tougher market situation this year compared to 2018, according to TrendForce. The company’s large panel manufacturing business is already recording low profits as Chinese panel makers are eroding its business, company representatives pointed out. Samsung Display was once the exclusive supplier of small OLED panels, but this year, LG Display and Chinese competitors, such as Visionox and Tianma, are well positioned bring down the South Korean company. Perhaps in response, Samsung Display has reduced the capacity of its Gen 8.5 plant, resulting in reduced shipments.

Lack of Innovation

Samsung had already lost the voice recognition technology compared to Alexa, Siri, and Google Assistant, says Werner Goertz, an analyst at Gartner. Its Bixby counterpart is too focused on managing hardware devices, says Goertz. To mitigate the slowdown in smartphones and displays, Samsung Electronics aims to boost sales by focusing on flexible phone screens and network equipment for 5G mobile technology, analysts indicated. Innovation in these two spaces can create opportunities and more demand, but these are emerging technologies that will take a few years to gain a foothold, according to Vice President, Ma. Samsung has developed 5G network equipment in recent years, says Goertz. The standards are maturing and deployments are starting for Samsung to benefit from the first revenues in 2019. The Galaxy X model, scheduled for release next month, would either prove or refute the sales potential of flexible phone screens.

Future of Smartphones

The global smartphone market has witness negative results for the first time in the year of 2018, which recorded a decline of 4% from 1,558.8 million-unit shipments in 2017 to 1,498.3 million units in 2018. The fourth quarter smartphone shipments for 2018 recorded a decline of 7%, marking it the fifth consecutive quarter of decline.

Huawei, OPPO and Vivo are having huge demand in the nations like China, India, Asia and parts of Europe. Samsung and Apple saw tough times as demand for their flagship phones waned due to competition from affordable yet premium phones from Chinese brands such as Huawei and OnePlus, the report said.

There has been an annual growth rate of around 16% in the smartphone shipments during the period from 2012 to 2017, but this rate has declined by about 1% this year to value about 1.5 billion. Several factors are causing this slowdown such as the saturation of mobile computing devices market in the leading economies. A slowing global economy, with rising trade tariffs, along with the rising price of smartphone devices are also becoming the major concern for the decline of these shipments in this year.

The future of the global smartphone market looks bleak as the shipments declined for the fourth consecutive quarter based on the latest data from research firm IDC.

Smartphone makers shipped an estimated 355.2 million units in Q3, which translated into a year-over-year decline of 6%. The decline is attributed to Samsung and the Chinese market. IDC claims that Samsung had a challenging quarter with shipments down to 72.2 million units, which is a drop of 13.4%. Its market share is also eroded by Chinese brands (Xiaomi, Oppo and Vivo) in countries such as India and Indonesia.

China, which is the largest country market for smartphone consumption, saw shipments fall by 11% in the first half of 2018. This is the sixth consecutive quarter of market contraction.

Huawei maintained its second position with 52 million phones shipped, beating out Apple for the second consecutive quarter. The flagship P-series and Mate-series are keeping Huawei competitive in the top-end segment while the Honor brand continues to do well in developing markets. Apple could overtake Huawei and Samsung as it recently launched three new iPhone models in more markets.

About Harish Datta Chitneni 27 Articles
Being an energetic and innate self-motivated guy, Harish is ambitious to learn new things. He worked for more than 4 years in the field of market research, consulting and advisory of Wealth Management, Agriculture and Healthcare sector. He is a professional in performance management metrics in business functions with the ability to scrutinize, analyze, integrate and use the unstructured data source to develop innovative solutions for the business problems.