South Korean electronics giant Samsung are set to announce a 60% fall in Q3 operational profits. The figures are set to represent Samsung’s most significant drop in profit since 2011.
Forecast analysts had predicted Samsung profits to sit at £3 billion for the months of July-September 2014. With Samsung now expected to announce a figure nearer £2.5 billion, the worlds leading smartphone provider is hit with their second consecutive fall in quarterly profits.
Sales also fell during the same period, with £27.4 billion representing not only a £2 billion hole in what was estimated for the company, but also a 20% drop in sales from the same quarter a year previous end of the month.
A number of reasons have been suggested as to the reason Samsung have been hit with such a dramatic loss in profit. These figures are preliminary however, with an official announcement due at the end of the month.
Samsung’s steadily declining smartphone sales are seen as the main factor in the fall. Apple’s iPhone consistently performs better at the top end of the market compared with Samsung’s premium Galaxy smartphone. With discount devices developed by Chinese manufacturers such as Lenovo and Xiaomi increasing competition at the mid-low end of the market, Samsung’s share is being squeezed by increased competition.
A statement released by Samsung on the issue stated that “Smartphone shipments increased marginally amid intense competition,”
“However, the operating margin declined due to increased marketing expenditure and lowered average selling price.”
The release of a new flagship device, the Samsung Galaxy Alpha, was launched with a $10 million dollar marketing plan starring Lilly Allen. Added with the decline in market share and a decreased margin on smartphones sold, and it’s clear why Samsung continues to drag its feet.
Its the latest blow in what has been a curious month for the leading electronics company. The decision to completely cut off laptop sales in Europe earlier this month was also essentially taken as a result of failing to maintain a dominant share in a market now awash with younger competitors.
Samsung are also currently engaged in a couple of wranglings with rival companies, with contrasting severity.
Microsoft have recently outlined their intention to sue Samsung to tune of $6.9 million. Microsoft claim unpaid patent royalty installments are owed to them from September 2013. Samsung withheld a number of payments when they believed Microsoft broke the companies “business collaboration agreement” when purchasing Nokia.
Samsung have joined Motorola on Microsoft’s royalties hit list, with the two battling a similar case of unpaid royalties for several years now.
Whilst that particular case could hinge substantially on any future earnings for Samsung, a entirely separate row they are currently engrossed in is a little more unconventional.
A spat with rival South Korean tech developer LG has broken out over damaged goods. Samsung has accused LG employees, including a senior executive, of damaging a small number of Samsung washing machines.
The incident occurred in a store in Germany, with Samsung claiming LG workers were seen deliberately destroying four appliances made by Samsung.
LG have accepted responsibility for two, but insist the damage was entirely accidental. In fact, LG have left the onus on Samsung’s products with the accusation that the damage was done by the washing machine’s weak hinges.
Playground arguments aside, Samsung have announced plans to launch a new line of smartphones in order to stem the current tide of a diminishing market share. The creation of a new line of phones will aim at the low to mid end market, an area that Samsung has seldom looked to dominate.
Whether Samsung’s slowly sinking ship can be kept afloat by the creation of a new line of products and a jazzy marketing plan remains to be seen. Certainly, their mocking of Apple not so long ago seems to have been a misjudgement. Competing with lower end firms in the market, rather than at the very top, may turn out to be the ultimate outcome.