Samsung heads for first annual fall in profits for three years as rivals close in
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Version 0 of 1. Samsung is heading for its first annual fall in earnings since 2011 after it revealed its July-September profit would be the lowest in more than three years and said short-term prospects for smartphones were uncertain. The world’s smartphone leader has seen its market share decline in annual terms for the past two quarters, according to Strategy Analytics, out-classed by Apple’s iPhones in the premium segment and undercut by Chinese rivals like Lenovo and Xiaomi at the bottom end. Samsung said in a regulatory filing on Tuesday that operating profit for the third quarter likely fell 59.7% to 4.1 trillion won ($3.8 billion), well below market expectations. This would mark the South Korean company’s weakest quarterly profit since the second quarter of 2011 and the fourth consecutive quarter of earnings declines on a yearly basis. Samsung said that although “uncertainty” persisted in the mobile business, which accounted for nearly 70% of its 2013 operating profit, it “cautiously expects” higher shipments of new smartphones and strong seasonal demand for TV products. Many analysts and investors believe the best days are behind Samsung’s mobile division as it will need to sacrifice margins to prevent cheaper Chinese handsets grabbing more of its smartphone turf, even though new products like the Galaxy Note 4 will help nudge profits higher in the current quarter. “Samsung was too drunk on the memories of its past victories, which kept it from catching onto how the world was changing,” HMC Investment analyst Greg Roh said. Samsung rose to the top spot thanks to the popularity of its Galaxy phones, helped by features such as bigger screens that rivals products lacked. But analysts say the bigger iPhones released last month will likely take away Samsung’s consumers in the US who have chosen Galaxy phones for bigger screens. In emerging markets like India and China, Samsung’s smartphone sales were overtaken by local rivals. Samsung’s chip division was a lone bright spot. The world’s top memory chip maker said returns from that unit in the third quarter improved sequentially due to strong seasonal demand. On Monday Samsung revealed plans to spend $14.7bn on a new chip facility – its biggest investment in a single plant – as it leans on its semiconductor business to offset weakness in smartphones. The plant in Pyeongtaek, south of Seoul, would create 150,000 jobs. |