Challenging Times Ahead for Samsung

Samsung, the world’s largest smartphone manufacturer, announced that in the second quarter of 2014, it earned net quarterly profits of 6.25 trillion won (RM19.36 billion) down almost 20% from the second quarter of 2013. Its mobile phone division made the largest contribution toward the company’s profit and posted operating profits of 4.42 trillion won (RM13.7 billion) down 30% from the second quarter of 2013. These figures are Samsung’s lowest quarterly profits in two years and its third straight quarter of profit decline.

Strategy Analytics reports that in the same period, Samsung shipped 74.5 million smartphones worldwide, capturing 25.2% of the global smartphone market down from 32.6% market share it held in second quarter of 2013.

Samsung blamed its poor second quarter performance on numerous external factors including low seasonality, overestimated demand in the EU that led to a high number of units being unsold in stores, and low demand in China as customers wait for 4G LTE. These excuses come across poorly when, for the same period, the next five of the world’s largest smartphone manufacturers — Apple, Huawei, Lenovo, Xiaomi and LG — all shipped more units in the second quarter of 2014 compared to the second quarter of 2013, and all but LG grew their year-on-year market share for the quarter.

Samsung did concede that profits were down also due to the strong Korean won, increased marketing costs to stimulate demand for the Galaxy S5 and other smartphones, and because of intensified price competition in China in the mid to low-end market.

Looking ahead into the second half of 2014, Samsung expects demand for its high-end smartphones to grow led by TD-LTE expansion in China and lower inventory levels in the EU. Demand for mid to low-end smartphones is also expected to grow led by emerging markets although the company expects to face stiff competition for these customers from Chinese brands like Xiaomi and Lenovo.

Samsung will also rely on innovation and new technologies and designs to turn around its fortunes and return to growth. In a call with investors, Kim Hyun-Joon, a senior vice president at Samsung’s mobile-communications business, said that one of their forthcoming products will feature a large screen, while another will be made using “new materials.” He did not elaborate any further. It is likely that the next smartphone from the company will be the Samsung Galaxy Note 4 that is expected to launch in September as well as the ultra-premium Galaxy Alpha that’s rumoured to be released around the same time.

Whatever the case, Samsung has its work cut out for the coming months. Will Chinese manufacturers be the end of the Korean blue oval? Tell us in the comments.