Samsung Profits Hit by Low-Cost Phone Rivals

When Samsung stumbles, the impact can be felt across South Korea, such is the importance of the technology titan to the Asian nation's economic prospects. Investors, though, appear to be encouraged after the company revealed that its earnings decline in the final three months of 2014 was not as sharp as they had feared.

In its preliminary earnings guidance, Samsung Electronics Co. Ltd. (Korea: SEC) said it had made around Korean Won 5.2 trillion ($4.7 billion) in the fourth quarter, 37% less than in the same period of 2013.

Samsung also indicated that fourth-quarter revenues would be around KRW52 trillion ($47.4 billion), down 12.3% over the same period, although an improvement on the KRW 47 trillion ($42.8 billion) Samsung reported in revenues in the third quarter of 2014.

Samsung's share price closed up 0.5% on the Korea Exchange Thursday.

The figure for operating profit is higher than the KRW 5 trillion ($4.55 billion) that analysts were expecting, according to a BBC report, but reflects the recent surge in competition from low-cost vendors in China, where Samsung is recently believed to have suffered a loss of market share.

The company is also under pressure from Apple Inc. (Nasdaq: AAPL) at the opposite end of the market.

Even so, operating profits had declined by as much as 60% in the third quarter, compared with the same period in 2013, and the launch of the Galaxy Note 4 at the end of the third quarter may have helped Samsung deliver a sequential improvement. (See Pressure Grows on Samsung in Q3.)

In its third-quarter earnings report, Samsung had flagged a "marginal impact from the new Note 4", with smartphone shipments up slightly.

At the time, the company had also predicted that demand for smartphones would increase in the fourth quarter as competition among manufacturers intensified.

Conditions in Asia seem likely to grow more challenging following this week's announcement by Lenovo-owned Motorola Mobility LLC that it will re-enter China's smartphone market in the next few weeks, launching several devices over the Chinese New Year period. (See Motorola to Re-enter China Smartphone Market.)

— Iain Morris, News Editor, Light Reading

Kruz 1/9/2015 | 11:38:47 AM
Re: Surprising It was expected in a way. Users need a fresh design as the existing Samsung design are lacking creativity. Xiaomi and other Chinese players are eating up its low end market share and Apple has just entered the phablet competition. Samsung needs to deliver in 2015.
smkinoshita 1/8/2015 | 1:52:43 PM
Surprising "At the time, the company had also predicted that demand for smartphones would increase in the fourth quarter as competition among manufacturers intensified."

I would have predicted the same, and I'm surprised Samsung's been hit the way it has. I wonder if returns play an issue?  Last time I was at a mobile store, I overheard a customer complaining about the way their Samsung phone was behaving and I had the same issue with my old phone, which was a Samsung.  I'm currently using a Motorola.  Most of this is probably pure coincidence but I still wonder.
Mitch Wagner 1/8/2015 | 11:13:03 AM
Squeeze I wonder what accounts for the decline in smart phones. Squeezed by Apple at the high end and low-cost Android phones at the low end?

Would expanding beyond Android make much of a difference to Samsung? I suspect not -- Android is highly customizable, giving handset providers every opportunity to customize. 
iainmorris 1/8/2015 | 11:02:22 AM
Can Samsung deliver improvements in Q1? Profit decline in Q4 not as sharp as in Q3 but it will be tough for Samsung to sustain the momentum going into the traditionally slow Q1 period, especially with Motorola preparing to enter the Chinese market.
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