Samsung Foresees a Decline in Profit
Samsung Foresees a Decline in Profit
By BRIAN X. CHEN JULY 7, 2014
The next big thing is here, as Samsung Electronics likes
to say in its ads. But fewer people appear to be buying it.
Samsung, which is based in South Korea, on Tuesday
published a financial earnings preview that forecast a profit of about 7.2
trillion won, or $7.1 billion, for the three months that ended in June.
While that is still a substantial chunk of money, the
overall profit represents a decline of 24 percent from the same period a year
ago. The profit forecast also missed analysts’ expectations of about 8 trillion
won.
Samsung, in a rare move, issued a lengthy statement
explaining the disappointing forecast. It blamed a slowdown in growth of the
overall smartphone market as well as increased competition in China and in some
European markets.
The company noted that smartphone sales were typically
soft in the second quarter in China, the largest smartphone market in the
world. But it also said its tablet sales were “sluggish” because people
typically upgraded tablets more slowly than they did smartphones. It said that
higher shipments of big-screen smartphones cannibalized demand for smaller
tablets.
Samsung also attributed the disappointing profit to the
Korean currency’s appreciation against the dollar, euro and other
emerging-market currencies.
In order to bolster sales of smartphones over the
quarter, Samsung said, it had to increase spending on marketing promotions,
which also ate into its profit. For example, in one promotion offered by
Verizon Wireless, consumers could buy a Galaxy S5 smartphone and get another
phone free.
These issues are not unique to Samsung. Growth of the
overall smartphone market has slowed over the last year, largely because many
people who want a smartphone already have one. Smartphones with nice screens
and high-quality cameras are commonplace, and people may be feeling less compelled
to upgrade as frequently, analysts say.
But Samsung, which offers a range of phones at various
prices, is feeling pressure from all sides of the market. In the high end, it
faces stiff competition from Apple, whose iPhone sales have recently
accelerated thanks to a new partnership with China Mobile, the largest phone
carrier in the world.
And in the low end and midtier phone markets, Samsung is
facing intense competition from emerging Asian phone makers like Lenovo, ZTE,
Xiaomi and Huawei.
A version of this article appears in print on July 8, 2014,
on page B3 of the New York edition with the headline: Samsung Foresees a
Decline in Profit.
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