Samsung Electronics posted a dismal eight per cent drop in profits for the second successive quarter that was largely attributed to the slow uptake of its smartphone the Galaxy S6 in the face of increased competition. Troubling times are ahead for one of the world’s largest tech companies, largely due to cutthroat competition from Chinese upstarts Xiaomi, Huawei and Lenovo’s acquisition of Motorola.
Samsung posted a decline in net profits to $4.9 billion for the period running April to June 2015. The company’s mobile division profits also went down to $2.35 billion from $3.7 billion a year earlier representing a 62 per cent drop. Sales for the company’s products also took a hit, dropping 7.2 per cent to $41.7 billion.
This marks the seventh successive quarter the Korean electronics maker has posted a decline in profits.
Earlier this year, Samsung had warned that it was going to miss its targeted earnings for the second quarter of the year. The drop was expected due to a miscalculation of the expected demand for the company’s Galaxy S6 brands.
Samsung initially predicted that the Galaxy S6 smartphone would sell four times more than its alternative make, the S6 Edge. What played out in reality was different.
In the market, just as many users wanted the S6 as those that did the S6 Edge, evening out demand. This led to a crippling shortage of the S6 Edge and huge stocks of unpurchased Galaxy S6 smartphones across the globe.
Samsung said, "Although revenue increased, profits increased marginally [quarter over quarter], due to supply difficulties from higher-than-expected market demand for the Galaxy S6 Edge, as well as increased marketing expenditures that typically accompany flagship product launches.”
Although the company made efforts to remedy the situation, the unexpected supply boost led to higher supply costs, bringing down the smartphone maker’s profits.
Competition also reared its ugly head in the smartphone maker’s sales books. On the high end, Sammy lost market share to Apple and its trendy iPhone brand. At the lower end, increased production of cheaper smartphones by emerging companies stifled growth.
Operating in the cut throat competitive market has become tougher and Samsung is bracing its shareholders for tougher times by issuing early warnings.
Samsung said “While [the second half of] 2015 is expected to present mounting challenges, the company will try to improve earnings.”
Part of Samsung’s strategy to combat the glut in demand is to unveil a new set of high-end high-priced smart phones, their oncoming Galaxy Note 5 tablet and the reduction of pricing on their low end phones. Already, Sammy’s phone prices have dropped by over 10 per cent to below $300 compared to the iPhone’s price rise by more than $100 in the last year.
Sammy has issued another warning for the coming third quarter as it struggles to even out market demand and supply, while unveiling new products. Analysts are in agreement, things are bound to get worse before they do get better for the Korean company.