Samsung warns of massive 60% decline in profits for Q3, cites stiff smartphone competition

Posted:
in General Discussion edited October 2014
Apple rival Samsung on Tuesday warned investors of an upcoming slide in quarterly profits that could amount to a 60 percent decline from the same time last year, blaming the slump on a squeeze in both high and low ends of the mobile phone sector.


Samsung's Galaxy Alpha smartphone.


According to Re/code, Samsung Electronics said in a note to investors that it plans to report an operating profit of $3.8 billion for the third quarter of 2014, foreshadowing what could be the company's biggest earnings drop in five years.

Compared to the same three-month period last year, the Korean tech giant's expected profit represents a decline of nearly 60 percent. As noted by the publication, the $3.8 billion number is far short of analyst expectations, which according to Reuters stands at an average of $5.2 billion.

Samsung blames reduced profits to increased high- and low-end competition in the smartphone market, a decline in display shipments and unexpectedly low demand for television products.

As for the smartphone sector, Samsung said shipments have increased compared to previous quarters, but profit margins are down as the company gets squeezed on both ends by low-cost handsets from the likes of Xiaomi and flagship devices like Apple's latest iPhone models. High-margin devices like the Galaxy S5 have seen lower-than-normal shipments, while overall average selling prices are down, the company said. Specific shipment numbers were not offered.

According to analysts, Apple effectively blocked out Samsung's big-screen smartphone niche at the top-end with the iPhone 6 and 6 Plus for the quarter ending in September. Apple's latest releases are the biggest iPhones to date and, with the 5.5-inch iPhone 6 Plus, mark an entry into the so-called "phablet" game where the Galaxy lineup has gone nearly uncontested for years.

To cope with heightened competitive pressure, Samsung said it plans to grow marketshare going into the fourth quarter with new devices like the Note 4 and entry-level options tailored for burgeoning markets. Of special interest to all smartphone makers is the booming Chinese market, in which Samsung has reportedly lowered pricing to stay relevant. Chinese buyers have shown healthy interest in Apple's iPhone 6 and 6 Plus, however, with the handsets supposedly notching two million preorders in their first six hours of availability. Current estimates see swelling demand with well over four million reservations.

Aside from lower smartphone margins, Samsung also pointed to lower-than-expected seasonal television pricing, a shortened summer sales period and increased marketing expenditure as reasons for the third quarter drought.

Looking forward, Samsung is cautious about fourth quarter performance, while insiders claim the company's electronics division may undergo a major restructuring in attempts to diversify beyond a reliance on smartphones, reports The Wall Street Journal. Citing analyst reports, the publication said Samsung's memory chip business may outperform its mobile arm later this year. The last time such a scenario played out was in since 2011.
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Comments

  • Reply 1 of 222
    canukstormcanukstorm Posts: 2,608member

    This calls for a celebration

  • Reply 2 of 222
    WOW. I expected a drop, but that much? What about the holiday quarter, which is where the iPhone 6 is really going to catch its breath before setting more records?
  • Reply 3 of 222
    Everyone sees what HP and Dell look like today, right? That's Samsung in three years. Low cost crap that's only riding along due to brand recognition.
  • Reply 4 of 222
    sflocalsflocal Posts: 6,020member

    Your profits are declining Samsung because you make CRAP!  Nice try placing blame elsewhere...



    I hope it keeps dropping like a rock.  Good riddance.

  • Reply 5 of 222
    mr4jsmr4js Posts: 55member

    Looking for a new fridge. No way I buy Samsung.

  • Reply 6 of 222
    sflocal wrote: »
    Your profits are declining Samsung because you make CRAP!  Nice try placing blame elsewhere...


    I hope it keeps dropping like a rock.  Good riddance.

    Apple is going to be giving them more cash next year, sadly. Reports are saying that Apple will be buying so much DRAM next year that Samsung (and the other companies) will be adding production lines just to meet demand. They're expecting Apple to jump from consuming 16.5% of the worlds mobile DRAM output to a whopping 25%.

    http://press.trendforce.com/press/20140925-1658.html
  • Reply 7 of 222

    "stiff ... competition"

    I saw what you did there.

  • Reply 8 of 222
    jungmarkjungmark Posts: 6,924member
    Haha. The Next Big Decline is almost here.
  • Reply 9 of 222
    bdkennedy1bdkennedy1 Posts: 1,459member

    Well it seems those hilarious commercials are working.

  • Reply 10 of 222
    Quote:

    Originally Posted by mr4js View Post

     

    Looking for a new fridge. No way I buy Samsung.


    Fellow members of AI…..our collective Samsung boycott is working. ;)

  • Reply 11 of 222
    They can always add inches to their phablet screen or pixel density, or failing that, MORE CORES. So much more room for "innovation" left. Don't count them out¡
  • Reply 12 of 222
    solsunsolsun Posts: 763member

    How queer that Samsung is citing "stiff competition" as the reason for decline in profits when they are the one who said the iPhone 6 "bends."

  • Reply 13 of 222
    gtrgtr Posts: 3,231member
    Do shareholders have the ability to vote out Lee Kun-hee?

    I'd buy that for a dollar.
  • Reply 14 of 222
    MacProMacPro Posts: 19,523member
    solsun wrote: »
    How queer that Samsung is citing "stiff competition" as the reason for decline in profits when they are the one who said the iPhone 6 "bends."

    Haha good one.
  • Reply 15 of 222
    radarthekatradarthekat Posts: 3,577moderator

    Samsung warns of massive 60% decline in profits for Q3.  That's interesting.  

     

    I wonder how this plays out over the next several quarters...

     

    Q4:  Samsung signals colossal collapse in holiday quarter earnings, expects early release of new flagship model to boost sales

     

    Q1:  Samsung cautions investors regarding elephantine shortfall in first quarter, implies new flagship model not selling well

     

    Q2:  Samsung reports minimal loss for second quarter, says Galaxy S6 dodeca-core processors are supply constrained

     

    Q3:  Samsung to delay earnings report, touts new dodeca-core washing machine with built-in 5.1" touch display

     

    Game over.

  • Reply 16 of 222
    Ultimately, Samsung is quickly discovering that they had very little brand loyalty from consumers. They're not Apple.

    Most Android buyers just take whatever the salesman is pushing that day. Android fanatics haven't liked Samsung for years, the current hip brands are Motorola, LG, and Sony (who does make some amazingly good phones, especially the Z3 Compact).

    The loyalty is to Android, however, [I]not Samsung.[/I]

    Samsung is just a box builder. And box builders are interchangeable.
  • Reply 17 of 222
    Heh heh. The truth has a nasty habit of catching up.
  • Reply 18 of 222

    This is what they get when they focus obsessively on what the competition is up to, rather than obsessively focusing on making their own products better. Their marketing has turned into a lame joke rife with desperation. And they can't get out of their own way in trying to account for what Apple does.

     

    Samsung started pre-orders for the Note 4 on the same day that Apple released the iPhone 6/6 Plus. Their Note 4 ad has been claiming that the next big thing IS HERE. Yet, Apple introduced the 6 and 6 Plus AFTER Samsung introduced the Note 4, AND started selling the 6 and 6 Plus BEFORE Samsung even announced a sales date for the Note 4.

     

    Only AFTER Apple announced that China would not be included in the initial 6/6 Plus launch group did Samsung announce an early launch date for the Note 4 in China.

     

    If they really had confidence in their own products, they would let the products speak for themselves and not let the competition dictate when their products launch. And if they had confidence in the Note 4, why not show how great the product is, rather than spend millions on "WE WERE FIRST WITH BIG SCREENS!" commercials? It's like junior high schoolers are running the show, and they care more about scoring a few cheap shots on Apple than actually promoting their own products.

  • Reply 19 of 222
    alfiejralfiejr Posts: 1,524member

    but but but but ... Android is winning! all the smart guys on all the hip web sites (sorry, AI) say so - over and over and over and over ...

  • Reply 20 of 222
    '.... diversify beyond its reliance on smartphones...' Into what? Smarttoasters?

    Their TV business is sinking, their semiconductor business would be DOA if not for Apple, they are getting killed in the low end by Xiaomi and the high end by Apple, their wearables are a disaster, and Tizen is a non-starter. What do they have left to pursue that can turn profits around dramatically?
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