Smartphone slowdown. South Korean giant feels the pressure from cheaper Chinese handsets
Samsung profits have slipped as the South Korean electronic giants faced stiff competition from Chinese smartphone makers.
Samsung reportedly blamed higher marketing expenses and disappointing performance of its flagship S9 smartphone, which according to Reuters fell short of its sales target.
Some observers cite the lack of innovation in the smartphone sector, but Samsung is looking to resolve this. Earlier this week its unbreakable and bendable screen passed safety testing in the United States, which could lead to the widespread adoption of bendable smartphones in the years ahead.
Financially speaking, Samsung actually posted solid second quarter results with a very healthy profit, albeit slightly down.
For the quarter it made a net profit of KRW11.04 tr (£7.5bn), down from KRW 11.05 tr (£7.5bn) a year earlier.
The electronics giant also posted quarterly sales of KRW58.48 tr (£39.7bn), but this was down compared to the KRW 61 tr (£41bn) it made in the same quarter in 2017.
And Reuters pointed out that Samsung also posted its slowest quarterly profit growth in more than a year, as cheaper Chinese-made handsets put pressure on margins.
“Samsung was already lost to China in price competition and is getting threatened by Chinese models in designs and hardware strength,” Park Jung-hoon, a fund manager at HDC Asset Management that owns Samsung shares was quoted as saying.
“It is not an easy game for Samsung unless it really meets consumers needs for new smartphones,” he added.
Samsung is quoted as saying that higher marketing expenses and the disappointing performance of the flagship S9 smartphone, which fell short of its sales target, weighed on its mobile performance.
Samsung has long been rumoured to working on a super-flexible smartphone with a foldable display, and it hopes these new smartphones will drive sales in the years ahead.
“We are hoping that such adoption will serve as a catalyst in the stagnated mobile market,” KyeongTae Lee, vice president of Samsung’s mobile business, reportedly told analysts.
But Samsung’s mobile business witnessed a 34 percent fall in operating profit to 2.7 trillion won ($1.8bn) in the second quarter, its biggest decline since the Galaxy S7.
Samsung’s fortunes in the mobile market are vital as mobile accounts for about 40 percent of its revenue.
But Samsung of course has its fingers in a lot of other pies. Its chip business remains the principle earner in the second quarter, thanks to strong sales to the cloud-computing and crypto-currency sectors.
This helped stabilise DRAM chip prices, despite the fact that NAND flash memory prices slipped.
Samsung’s chip unit posted a record KRW 11.6 tr (£7.9bn) operating profit in the second quarter, up 45 percent from a year ago.
On the display side Samsung said earnings were weak due to decline in sales volumes, but OLED flexible panels are expected to increase sales.
LCD panels earnings are expected to remain weak due to “increased supply from competitors.”