Samsung Q4 hit by stiffer smartphone competition

Samsung Q4 hit by stiffer smartphone competition

24 JAN 2014

Samsung, feeling the pinch of increased smartphone competition, posted sharp quarter-on-quarter revenue falls at its IT and mobile communications (IM) business unit.

IM, which accounts for more than half of group revenue at the electronics giant, generated Q4 sales of KRW33.89 trillion (US$31.3 billion), down 7 per cent quarter-on-quarter. Mobile sales, at KRW32.17 trillion, were down 9 per cent quarter-on-quarter.

That’s disappointing since Q4 includes sales in the run-up to Christmas.

The company said that quarter-on-quarter, while market demand for smartphones had increased, its own shipments were down “slightly” due to inventory adjustments and the base effect from strong Q3 growth.

Samsung’s tablet shipments were up “sharply”, following the launch of its Tab 3 and Note 10.1 at the end of the third quarter.

Year-on-year, Q4 mobile sales were up nearly 9 per cent. And IM operating profit, over the same period, remained steady at KRW5.47 trillion.

Quarter-on quarter, however, IM profits slumped by 18 per cent.

Analysts said sales of new iPhones adversely affected Samsung’s Q4 sales. Heavy expenditure on mobile marketing also hit Q4 profits. Samsung now intends to lower its mobile marketing spend this year relative to revenue, said SVP Kim Hyunjoon, speaking to analysts (and quoted by Reuters).

Moreover, according to analysts, healthy margins from Samsung’s chip unit are failing to offset the flagging profitability of the flagship Galaxy series of smartphones.

“While the number of people buying smartphones is still increasing, it’s getting harder for Samsung to tap new demand for its high-end handsets,” said Nho Gen-Chang, an analyst at HMC Investment Securities, quoted by Reuters.

Nho said Samsung will have to lower prices to sell them which, in turn, will decrease its profit margins.

Samsung, however, is still the runaway leader in smartphone shipments – despite growing competition from budget smartphone suppliers.

According to IDC, Samsung shipped more smartphones during Q3 than the next four vendors combined.

But despite the popularity of the vendor’s flagship models, IDC said it was the company’s long line of mass-market smartphones (with lower margins) that helped fuel volumes.

Looking ahead, Samsung anticipates greater price and product competition in the feature-phone market during 2014, but still growing demand for smartphones fuelled by LTE expansion in Europe and China.

Due to seasonality pressures, Samsung expects QoQ demand for smartphones and tablets to decrease during Q1 2014.

At a group level, Samsung Electronics, as expected, posted an operating profit of KRW8.31 trillion (US$7.7 billion). That’s a 6 per cent decline, year-on-year, and an 18 per cent slump quarter-on-quarter.

Operating profits weren’t helped by a KRW800 billion special bonus paid to staff as a way to commemorate the 20-year anniversary of chairman Lee Kun-hee’s ‘New Management’ strategy.

A stronger Korean won, said Samsung, also hit profits to the tune of KRW700 billion.

Net profit rose slightly, up 3.7 per cent year-on-year to KRW7.3 trillion, but that was significantly down on Q3’s 25.6 per cent increase. Total company sales rose to KRW59.28 trillion (up from KRW56.06 trillion a year ago and KRW59.08 trillion in the previous quarter).

Author

Ken Wieland

Ken has been part of the MWC Mobile World Daily editorial team for the last three years, and is now contributing regularly to Mobile World Live. He has been a telecoms journalist for over 15 years, which includes eight...More

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