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Samsung’s First Annual Profit Decline Since 2011 Is Good News For Rivals

Samsung’s mobile division falters as competitors steal away its customers.

Samsung’s First Annual Profit Decline Since 2011 Is Good News For Rivals
[Photo: Flickr user Kārlis Dambrāns]

Samsung may have announced an exciting new strategy for the company’s future at the Consumer Electronics Show in Las Vegas this week, but that doesn’t change the fact that its recent past hasn’t been too rosy.

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The South Korean tech giant today confirmed that its fourth-quarter operating profit for 2014 is likely to be around 5.2 trillion won ($4.74 billion), bringing its total annual profits to around 25 trillion won. That means the company saw its first annual profit decline since 2011.

One of the key movers in this fall from grace is the relative collapse of Samsung’s mobile business, which represented 68% of the company’s profit at its 2013 peak, and fell to just 44% in this year’s third quarter. In particular, Samsung’s Galaxy S5 handset fell hard, apparently missing the company’s sales projections by 40-50%.

While that’s bad news at the best of times, today’s glimpse at earnings comes at the same time as very positive news for Samsung’s rivals.

While Samsung’s larger phones once snatched away a chunk of Apple’s iPhone audience, the iPhone 6 and 6 Plus have beaten Samsung at its own game: The new larger-screen iPhones are winning over the “phablet” crowd. Apple sold upwards of 10 million iPhone 6 and 6 Plus handsets in their first weekend on sale, and KGI Securities analyst Ming-Chi Kuo recently predicted that Apple would sell 71.5 million of the phones over the holiday season.

Samsung is being squeezed lower down the food chain as well. Beijing-based Chinese smartphone manufacturer Xiaomi has proven popular in key developing markets like China and India, where customers would rather buy cheaper handsets than Samsung’s flagship Galaxy series. Xiaomi recently announced sales of 61 million smartphones during 2014.

All isn’t lost for Samsung, of course. Despite the previous internal dominance of its mobile division, Samsung makes far more than just high-end smartphones. It is expected that Samsung’s chip fabricating business, combined with the release of new mid-to-low tier smartphones, will help business rebound in 2015. Profits will likely continue to improve through at least as far as the second quarter of 2015.

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On top of this, there is the company’s new focus on helping to build smart devices for the Internet of Things, although this is likely a longer-term ambition (read more about that here).

For now, Samsung needs to knuckle down and show that, even if it can’t deliver the big profits, it can at least demonstrate stability.

[via Reuters]

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