Samsung reports weak profits for Q4 while shipping 12.5% more smartphones, casting doubt on Apple,

Posted:
in iPhone edited January 2016
Samsung reported preliminary earnings for the December quarter, missing analysts' profit estimates while shipping 12.5 percent more smartphones over the year-ago quarter. That calls into question the supposed flat demand for smartphones, a problem alleged to also affect Apple.




Profits remain in doldrums due to lower-end smartphone mix



According to a report by Bloomberg, Samsung said its operating income reached $5 billion, while analysts had expected on average $5.54 billion, despite anticipating a slowdown in smartphone sales.

The company's earnings were just 15 percent above the disastrous holiday quarter it reported a year ago when its profitability was crushed by a nearly 50 percent decline in premium phone models, despite only an 8.2 percent decline in shipments.

In Q3 2014 Samsung's Galaxy S products + Note products saw nearly 50% decline in sales both QoQ and YoY according to my mix estimates.

-- Ben Bajarin (@BenBajarin)


The reason for the decline last year was widely blamed on competition from low end Chinese phones, but the company itself blamed "weak smartphone product mix," a problem deeply aggravated by Apple's larger iPhone 6 and 6 Plus models.

Rather than noting the impact iPhone 6 had on Samsung's earnings last year, Bloomberg speculatively stated that "demand is waning for smartphones, including its own Galaxy devices and those from Apple Inc., as markets mature and China's economy slows."

Neither Samsung nor Apple have detailed the actual sales volumes of their premium smartphones in the December quarter. Apple will detail iPhone sales later this month, while Samsung will not. It has never officially reported its comparable high end Galaxy sales. Usage data indicates that Samsung's high end Galaxy sales peaked with the Galaxy III and never recovered.


Source: Fiksu


Why so, Cirrus?



Samsung's weak sales of high end Galaxy smartphones not only impact the company's own component business, but also has an affect upon outside suppliers that do business with the company, including Cirrus Logic, Inc.

Last April, when Cirrus reported strong earnings, credit was given to its diversification away from Apple, which once made up 73 percent of its sales.

The iPhone maker's contribution subsequently dropped to 62 percent of Cirrus' sales following its acquisition of Wolfson, a chip supplier used by Samsung. While initially kept secret, Cirrus has since outlined in its SEC 10Q filing that Samsung now contributed 18 percent of its business as of last summer.

Specifically, Samsung uses Cirrus' Wolfson audio chips in its Exynos-powered Galaxy S6, S6 Edge and Galaxy Note 5, all premium flagships that were particularly hard hit by the iPhone 6/6s. Most previous Samsung Galaxy models used a Qualcomm processor and audio chips, but when the company switched from Qualcomm's troubled Snapdragon to use its own Exynos, it also sourced Cirrus to supply supporting Wolfson audio chips.




This is a fact that a variety of Android fan blogs bragged about, given that the Wolfson chips are considered to be audiophile quality premium parts (the company was Apple's original chip supplier for iPods, before it switched to Cirrus).

However, now that Cirrus is warning of a profit shortfall, the company is being called an "iPhone Supplier," with the assumption that Apple is to blame rather than the well known issue of the poor selling Galaxy S6, S6 Edge and Note 5, all high end products that flopped badly enough that Samsung's Vice Chairman Lee Jae Yong canned Shin Jong Kyun, the former chief of Samsung Mobile, over the group's collapse in profits.

Another company named as an "iPhone supplier" after it issued a profit warning is Qorvo, a year old company that emerged from a merger between TriQuint Semiconductor and its former rival RF Micro Devices.

"TriQuint's largest client was Apple contractor Foxconn, and TriQuint chips have been in each of the last several iterations of the iPhone," noted a report by Oregon Live. "RFMD's largest customer was Samsung."

Earnings miss on infringement award



On top of a slowdown in Galaxy sales, Samsung was also forced to finally pay Apple $548 million in damages from the original infringement trial. Without that expense, it appears that Samsung would have hit analysts' expectations.

Samsung's revenues of 53 trillion won were in line with the 53.8 trillion won expected by analysts. And despite all the talk about demand for smartphones ostensibly waning, Samsung shipped an estimated 83.8 million smartphones in the December quarter, similar to the 84 million shipped in the previous quarter. Last year, Samsung shipped an estimated 74.5 million smartphones in the winter quarter, a year-over-year increase of 12.5 percent.

Bloomberg compared Samsung's shipments sequentially, but did not note that the company's smartphones were up significantly over the year-ago quarter, a fact that directly contradicted its assertion that "demand is waning for smartphones."

Later this month, Samsung will break out individual results for each of its divisions, which includes the IT & Mobile Communications (IM) group that is roughly comparable to Apple's operations (including phones, tablets and PC sales), giving an even greater picture into the financial state of the troubled business segment.

In the September quarter, despite slashing prices and various promotions, Samsung struggled while Apple sold record numbers of iPhones without any price slashing.

In China, Samsung lost 4.3 percentage points of market share as Apple picked up 2.4, thanks to 68 percent growth in iPhone sales despite an overall smartphone market that shrank by 4 percent according to Gartner. Still, Apple's smartphone market share in China is estimated to be 14.6 percent, suggesting broad potential to continue to grow dramatically.

Three months later, the general assumption among the media is that if smartphones are down, Apple must be too, even though similarly premium Macs have been bucking the downward trend in PCs for years.

Similarly, anonymous supply chain rumors about Apple production cuts are assumed to be true even though supply chain rumors have repeatedly proven to be incorrect or misinterpreted.
levi
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Comments

  • Reply 1 of 31
    This story goes on as if Samsung's self-reported numbers are accurate. During the patent trial it was revealed that Samsung had exaggerated about the success of its smartphone business to the public and even its stockholders. 
    redgeminipabenjamin frostlkruppSpamSandwichjony0
  • Reply 2 of 31
    "It has never officially reported its comparable high end Galaxy sales."

    This is not entirely true. Up to and including the GS4 Samsung reported sales milestones. They never reported actual sales every quarter, but by reporting things like how many days to hit 10 million or when a device hit 20, 30 or 40 million sales you got a good idea how they were selling compared to previous models. Samsung also has a web page for their "10 million seller club".

    http://news.samsung.com/global/history-of-samsung-mobile-phones-10-million-seller-club

    I haven't seen an update to this infographic by Samsung since their last success, the Note 3, which hit 10 million in 60 days. The last Samsung sales numbers I saw were in Feb of 2014 when they announced they had sold 200 million Galaxy S flagship phones since the first Galaxy S in 2010. Over the exact same time period that the Galaxy S phones were available Apple sold 413 million iPhones.

    So 2 years ago next month Apple was already outselling Samsung's Galaxy S line by just over 2:1. Given the huge sales increases of the iPhone 6 and 6S, and Samsung revenue drops for 7 quarters, it's a given that ratio is significantly higher than 2:1 today. Since Samsung stopped reporting, I guess we'll never know how much of a smackdown Apple put on Samsung.
    macky the mackylarryaredgeminipacornchipjony0
  • Reply 3 of 31
    jfc1138jfc1138 Posts: 3,090member
    FB (-4.9%) took a bigger hit than Apple: what's up with that?
    edited January 2016
  • Reply 4 of 31
    calicali Posts: 3,495member
    And just like that Samsung is up %300 after this news!!

    /s
    macky the mackyredgeminipa
  • Reply 5 of 31
    jfc1138 said:
    FB (-4.9%) took a bigger hit than Apple: what's up with that?
    It's about time some of the stocks that had huge runups last year start taking a hit too.
  • Reply 6 of 31
    josujosu Posts: 217member
    cali said:
    And just like that Samsung is up %300 after this news!!

    /s
    300%!  Are you sure?
  • Reply 7 of 31
    josujosu Posts: 217member
    It starts to looks ridiculous the number of articles related to Apple vs. Wall Street. I know, is a period without rumors, so you must feed the blog, but everyday! I understand that people get increasingly anxious about the issue. Move on AI, there's not any rumors about the next iPads, Apple Watches or that new 4" iPhone? They are supposed to launch in April and no part leaks...
    damonf
  • Reply 8 of 31
    cnocbuicnocbui Posts: 3,613member
    I imagine reading this must be similar to talking to someone who was high frequency bipolar. Samsung failed - no actually they did well so Apple must be doing well - Samsung missed their target - no actually they were spot on and on and on.
    techlover
  • Reply 9 of 31
    radarthekatradarthekat Posts: 3,050moderator
    DED is often criticized for his writing style, and folks often pick out some nit to pick on his interpretation of the facts, but show me any analyst anywhere who delves into the sea of information to uncover 10% of the facts DED brings to light on the reality of Apple's business.  Anyone?  Who among the analyst community has even a shred of a clue?  Most follow many stocks, none at sufficient level of detail to truly comprehend the underlying businesses.  And yet these are the folks setting the price direction.
    edited January 2016 wonkothesanelkrupppropodronnpscooter63magman1979jony0badmonk
  • Reply 10 of 31
    josu said:
    It starts to looks ridiculous the number of articles related to Apple vs. Wall Street. I know, is a period without rumors, so you must feed the blog, but everyday! I understand that people get increasingly anxious about the issue. Move on AI, there's not any rumors about the next iPads, Apple Watches or that new 4" iPhone? They are supposed to launch in April and no part leaks...
    Everyday the hysteria continues.  Today will be Cirrus Logic proves Apple Is in demise. Where there's smoke there's fire, blah blah. This article is invaluable pointing out Apple is eating Samsungs lunch.  Suppliers misses are not an Apple issue, rather its Apple destroying another competitor.  The Katy Hubertys of the World don't make me a nickel.   DED has made me a small fortune and he keeps on giving.  '
    radarthekatronnlatifbpcornchipjony0
  • Reply 11 of 31
    dasanman69dasanman69 Posts: 12,980member
    josu said:
    cali said:
    And just like that Samsung is up %300 after this news!!

    /s
    300%!  Are you sure?
    The /s at the end of any post means the poster was being sarcastic. 
  • Reply 12 of 31
    josujosu Posts: 217member
    josu said:
    300%!  Are you sure?
    The /s at the end of any post means the poster was being sarcastic. 
    Sorry then...
  • Reply 13 of 31
    jungmarkjungmark Posts: 6,689member
    jfc1138 said:
    FB (-4.9%) took a bigger hit than Apple: what's up with that?
    Well less Apple users = less FB users. /s
    calicornchip
  • Reply 14 of 31
    I'm not flabbergasted that Samsung reported weak profits. 

    Smartphones are are becoming a commodity, I'm afraid, and that means that something has to give: either Apple's margins or Apple's sales. My feeling is that people like me will keep buying iPhones, but less frequently. Others will switch to Android. If Apple were to accommodate the whole market as they did for the iPod, then they would be able to enjoy a 60%+ market share. Alas, I fear that Tim Cook doesn't have the nous to follow in Steve Jobs' footsteps and make the bold decision to sell the iPhone at all price points. 

    I do like the idea of bringing out 4" iPhone models for the Western first world in the Spring, and saving the phablets for the third world in the autumn. This will help to even out iPhone sales and ease shortages. 
    Except Average selling price and unit sales of iPhones have been up 6 straight YoY quarters.

    People are buying more iPhones at higher prices than ever before. Seems like your 'theory' is totally false.

    Smartphones are the most important item in a persons life after their home and car. Do you seriously think people will give up a high quality iPhone to save $5 a month to get an Android? Get real. A smartphone is a mission critical devices for work and home and social. With the new iPhone lease plans people can pay $25 a month for an iPhone with zero down. I would believe your theory if people were forced to pay for the entire phone at $700-$900. But with leasing much of the high price tag is offset by Apple's high resale value and low lease payments.

    People use their phone every day for hours a day. No way people will be willing to use a 2nd class phone to save $5 a month. People don't think twice to spend $5 on a cup of coffee every day. No way on earth will they compromise on something they use everyday to save a few pennies a day.

    I do agree that Apple needs to lower prices in countries that don't have lease plans like in the USA. A prime example is in India where Apple dropped the price of the 5s 30%-40%.  But if you are expecting Apple to start selling $150 phones like Samsung don't hold your breath. Like Cook said they will never sell junk. 
    edited January 2016 netmageronncornchip
  • Reply 15 of 31
    cwscws Posts: 59member
    The $548 million Apple claim would in all likelihood have been included in Samsung's results long ago, not this most recent quarter. Generally accepted accounting principals require that such liabilities be recorded when they are estimable and probable. The original ruling of years ago would have satisfied that criterion.
  • Reply 16 of 31
    josujosu Posts: 217member

    josu said:
    It starts to looks ridiculous the number of articles related to Apple vs. Wall Street. I know, is a period without rumors, so you must feed the blog, but everyday! I understand that people get increasingly anxious about the issue. Move on AI, there's not any rumors about the next iPads, Apple Watches or that new 4" iPhone? They are supposed to launch in April and no part leaks...
    Everyday the hysteria continues.  Today will be Cirrus Logic proves Apple Is in demise. Where there's smoke there's fire, blah blah. This article is invaluable pointing out Apple is eating Samsungs lunch.  Suppliers misses are not an Apple issue, rather its Apple destroying another competitor.  The Katy Hubertys of the World don't make me a nickel.   DED has made me a small fortune and he keeps on giving.  '
    Agreed, to me the problem in supply chain can perfectly be explained by the beginning of the needed shake out of the smartphone manufacturers, is ridiculous that, but Apple and way less Samsung, nobody makes money building handsets. It must end in a big shake out of the business and the first victims are suppliers. Remember the tech crush of the 2000, it was the shake out if the internet industry craze, and the most damaged, besides the collapsed companies, where internet infrastructure builders, Dell, Intel, Microsoft, Cisco, etc. Went down, without Wall Street noticing in advance, giving few months before to CSCO and MSFT higher valuation than Apple ever in today dollars, even if their profits where nowhere near Apple today or Google for that matter. For instance, CSCO got a valuation equivalent of 800 billion with around 30 billion in revenue. 
  • Reply 17 of 31
    I'm not flabbergasted that Samsung reported weak profits. 

    Smartphones are are becoming a commodity, I'm afraid, and that means that something has to give: either Apple's margins or Apple's sales. My feeling is that people like me will keep buying iPhones, but less frequently. Others will switch to Android. If Apple were to accommodate the whole market as they did for the iPod, then they would be able to enjoy a 60%+ market share. Alas, I fear that Tim Cook doesn't have the nous to follow in Steve Jobs' footsteps and make the bold decision to sell the iPhone at all price points. 

    I do like the idea of bringing out 4" iPhone models for the Western first world in the Spring, and saving the phablets for the third world in the autumn. This will help to even out iPhone sales and ease shortages. 
    This argument has been made for 30 years and the one time apple listened and lost their way they almost went bankrupt. Apple has less than 20% oh the market and lots of room to grow. Margins allow them to ignore market share and focus on quality. The race to
    the bottom is the double edged sword that has killed or nearly killed each of their competitors over the years. How many of their original computer competition are still around? If they are do they even sell computers now?
    ronnmagman1979cornchipjony0
  • Reply 18 of 31
    Somebody must've left the back door open... what are certain posters doing here, after having been banned previously?  Just askin'.
    latifbp
  • Reply 19 of 31
    radarthekatradarthekat Posts: 3,050moderator
    josu said:

    Everyday the hysteria continues.  Today will be Cirrus Logic proves Apple Is in demise. Where there's smoke there's fire, blah blah. This article is invaluable pointing out Apple is eating Samsungs lunch.  Suppliers misses are not an Apple issue, rather its Apple destroying another competitor.  The Katy Hubertys of the World don't make me a nickel.   DED has made me a small fortune and he keeps on giving.  '
    Agreed, to me the problem in supply chain can perfectly be explained by the beginning of the needed shake out of the smartphone manufacturers, is ridiculous that, but Apple and way less Samsung, nobody makes money building handsets. It must end in a big shake out of the business and the first victims are suppliers. Remember the tech crush of the 2000, it was the shake out if the internet industry craze, and the most damaged, besides the collapsed companies, where internet infrastructure builders, Dell, Intel, Microsoft, Cisco, etc. Went down, without Wall Street noticing in advance, giving few months before to CSCO and MSFT higher valuation than Apple ever in today dollars, even if their profits where nowhere near Apple today or Google for that matter. For instance, CSCO got a valuation equivalent of 800 billion with around 30 billion in revenue. 
    Agreed.  And MSFT's multiple at its $650 billion market cap peak was 100.  That's the reason MSFT flatlined for a dozen years; to grow while its valuation shrunk until the multiple was back inline.  
  • Reply 20 of 31
    I'm not flabbergasted that Samsung reported weak profits. 

    Smartphones are are becoming a commodity, I'm afraid, and that means that something has to give: either Apple's margins or Apple's sales. My feeling is that people like me will keep buying iPhones, but less frequently. Others will switch to Android. If Apple were to accommodate the whole market as they did for the iPod, then they would be able to enjoy a 60%+ market share. Alas, I fear that Tim Cook doesn't have the nous to follow in Steve Jobs' footsteps and make the bold decision to sell the iPhone at all price points. 

    I do like the idea of bringing out 4" iPhone models for the Western first world in the Spring, and saving the phablets for the third world in the autumn. This will help to even out iPhone sales and ease shortages. 
    More horse puckey from you know who.

    Few seem to realize the fundamental flaw with "data analysis": it can only look towards the past, and NEVER predict the future which is always wide open to change. The Apple iPhone will NEVER become a commodity as long as Apple continues to refresh its features and capabilities. Installed bases are also irrelevant, as Apple proves most every quarter with increasing sales and profits. There is absolutely no need for Apple to sell its iPhone "at all price points." This actually benefits those would-be owners by incentivizing them to simply make more/save more money in order to buy one.
    calicornchipjony0
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