Samsung predicts a 25% drop in Q2 profits – is the golden era of high-end smartphones over?

July 8, 2014
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samsung-earnings-report YouMobile.org

Samsung has released a Q2 earnings forecast in which the electronics giant says it will see a drop of 25% in its operating profits for the three month period ending June 2014. The company says it has “witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets.” Coupled with a stronger Korean currency, which has appreciated against the dollar and the euro, the company is expecting its Q2 operating profit to be $7.1 billion, down from $9.4 billion a year ago.

The release of the OnePlus One is a perfect example of the increased competition that Samsung is facing.

Q2 is often a weak period for smartphone demand in China, and this together with the increased competition has meant that Samsung has higher inventories of medium- and low-end smartphones. Also the demand for 3G devices is waning as consumers move over to 4G LTE products.

The release of the OnePlus One is a perfect example of the increased competition that Samsung is facing. The device uses the same processor as the Samsung Galaxy S5, also has a full HD display like the S5, uses Corning Gorilla Glass 3 – just like the S5, it also supports 4G – just like the S5 but yet it is much cheaper. $299 gets you the base 16 GB model of the OnePlus One, and the 64 GB black edition will set you back just $349. This is the off-contract price and unlocked to work with any SIM. An off-contract Samsung Galaxy S5 will cost you double that!

Samsung’s tablet sales have also taken a hit. The company says that tablet sales “were sluggish due to a longer replacement cycle than that of smartphones, which is usually between two to three years.” It also notes that the popularity of 5-to-6 inch large screen smartphones has dented the demand for 7-to-8 inch tablets.

Samsung cautiously expects a more positive outlook mainly due to the coming release of its new smartphone lineup.

As a result of the higher levels of inventory, Samsung has launched various promotions to reduce stock levels. This in turn has increased the company’s marketing expenditure compared to the previous quarter.

The knock-on effect of the weaker demand for smartphones has also affected the System LSI and the display business units which provide components and screen technologies for phones and tablets.

As for the future, Samsung “cautiously expects a more positive outlook” mainly due to “the coming release of its new smartphone lineup.” Samsung released the Galaxy S5 earlier this year, however it is expected to update its Galaxy Note range during the next few months.

What do you think? Can Samsung continue to compete with the likes of OnePlus, Xiaomi, Huawei and ZTE (plus the smaller OEM’s like ThL) with such high prices? Is it unrealistic for Samsung to continue to make quarterly profits in the billions?

Comments

  • http://www.dazeinfo.com/ Dazeinfo -Startling Insights O

    Samsung need to learn something from this, What is the need of launching 20 smartphone every quarter they are good in marketing so they need to focus on promotion of existing device, rather than wasting money on launching various handset.
    This says Samsung Galaxy S5 sales are worse than Samsung Galaxy S4, Huawei & Lenovo giving tough competition to Samsung.

    • marywedwards

      just before I looked at the receipt ov $8130 , I
      didn’t believe that my sister woz like actualy bringing in money part-time from
      there pretty old laptop. . there aunts neighbour has been doing this 4 only
      about 22 months and at present repayed the mortgage on their appartment and
      bought themselves a Chrysler . see here M­o­n­e­y­d­u­t­i­e­s­.­C­O­M­

    • banglaz bless

      Huh? So you think that’s what stopping them from gaining more profits? What? Get a clue man, if they (samsung) only have one model *s5* where would they be today interms of market share/profit? There is alot more at play here, stop the idiotic comments. People such as yourself could’ve never run a business, you’d be bankrupt by thought process.

      • abazigal

        Apple releases just one new phone a year and still commands the lion share of the market, so it’s definitely possible (though not easily replicated by any means, since its success also stems from the strength of their ecosystem).

        • banglaz bless

          You’ve just contradict your own statement. Android is build up of multiple OEM, if you want to compete you have to go beyond the ordinary, you have to think of ways to make a profit, Samsung is not running their own ecosystem like apple does, so it requires more of them. say what you want about Samsung but if you look around, they’re the only one making a hefty profit in the Android space. Why should they change their strategy? Because of a little loss in the profit margin? Anyone of these other Android manufacturer would kill for those numbers, but here you are acting as if Samsung is crumbling.

  • novak

    Samsung has always made billions in quarterly profits so it’s not unrealistic they will continue to do so. Q2 and Q3 were abnormally high profits so either their normalizing or the factors mentioned were really tough. but it seems they are weathering the storm after the won appreciation and sluggish sales of their low end phones and its not impossible they will have lower q3 than last year but will still earn much better than this quarter

  • wat

    We will soon get to the point where the physical dimensions and forms of companies smartphones stop and iterations thereon will only be in specifications and software which will distinguish what people buy. Android is not part of this plan until they can offer something like Ubuntu will offer.

  • Mike Reid

    GS5 sales are slow, in part due to the competition and some of their lower prices.

    Yes, Samsung’s glory days may be over, unless/until they can replicate the success of GS1-GS4 and Note1-Note3.

    • novak

      They still made approximately 6.5 billion in net profits despite the hurdles and will have about 66 to 67 B in free cash by this month. Their glory days are still there lol

  • Shark Bait

    no, Samsung doesn’t make high end smartphones by today’s standards.

    They use plastic and have crap design, they are competing against the one plus one and the nexus 5. But cost a whole lot more.

    The definition of high end smartphones has changed, consumers want nice materials and beautiful design. something Samsung doesn’t offer. They offer OK phones at high end prices, no wonder their profits are falling.

    • Cole Raney

      God, what is it with you people that think plastic is poor quality? I’d much rather have plastic than metal.

      • Shark Bait

        I’m not talking quality, I’m talking cost. Samsung is selling cheap materials at premium prices. Consumers are clearly becoming more aware of this and Samsung are loosing out

        • luka3

          except that the BOM of samsung phones are much higher than others. you think that super amoled screen is cheap?

          • Shark Bait

            it is the most expensive part yes, but not more expensive than any other pannel. The s5 BOM is estimated at £200 which is about standard, and lower than HTC. They cant continue with these huge margins without offering a premium product. Samsung is now veiwed as the standard phone maker by the consumer, not premium

          • luka3

            you’re the one who mentioned cheap materials and yet the total BOM is higher than most. S5 bom is higher than iphone 5s and selling at a lower price now http://www.telecomstechnews.com/news/2014/apr/16/s5-most-expensive-smartphone-build-galaxy/

          • Shark Bait

            YES but the iPhone is perceived to be a more quality product, that’s my whole point here, the metal body and design is all part of the marketing that tells the customer “this is a premium produce, this is worth more money”

          • luka3

            i dont get it, now its perception? when it’s factual data that the materials are NOT cheaper and that factual data doesnt support your assumptions. perception is not the same as fact :)

          • Jayfeather787

            Perception has a lot to do as to how people look at the device. Facts are not how everything is looked at.

          • Shark Bait

            ok you ask the average consumer which costs more, metal or plastic. they will say metal. Even if they have no idea about the costs. It is perceived by the customer to be of a higher quality, and they are willing to pay more. This is why Samsung are loosing out

          • abazigal

            BOM is one thing, you also have to assume that the materials are also being used in a meaningful manner which value-adds to the final product. Buying a $100,000 grand piano doesn’t automatically make me a better musician that someone using a $10,000 piano. Maybe they spend a lot on that plastic case, but it doesn’t mean that people will automatically have to like it. They made a huge deal out of their 8-core exynos processor, but it turned out to give sub-par performance. The heart-rate monitor in their S5 phone isn’t all that accurate, and I doubt people will actually use it all that much.

            Samsung throws a lot of stuff into their phones (which no doubt raises the price) but it doesn’t automatically ensure a great user experience.

    • Major_Pita

      Samsung is one of the few manufacturers still making smartphones with removable/replaceable batteries and expandable storage. Their presence in the market helps ensure competing products like the LG G3 are made.
      The Nexus 5 while nice is just another disposable phone. In two years it’s battery will be shot with no way to replace it and you’ll have a nice corded smartphone. Nice materials and beautiful design … yeah, until the first time you drop it onto a tile or concrete surface and it breaks because you just can’t bear to put a case on it. I’d rather have a phone that can still have value after a couple years – even if it is poly-carbonate. With a case on it all you see is the screen, and Samsung makes those better than anyone else.

      • Shark Bait

        dude im not slamming samsung, fanboys are so quick to attack in defense. You counter my point with a load of unrelated junk about same old fan boy droll………sigh

        I understand removable batteries are nice, but your point about batteries being dead in 2 years isn’t too much of an issue as most consumers replace there device on a bi-yearly cycle. Once again I’m not slamming Samsung, just saying how they sell cheap materials at premium prices. Consumers are clearly becoming more aware of this and Samsung are loosing out

        • toboev

          “your point about batteries being dead in 2 years isn’t too much of an
          issue as most consumers replace there device on a bi-yearly cycle”
          Er, and what, they are uninterested in the value of their asset at the end of two years?

          But, to be fair, my own Note I is over two years old, still on the original battery and still good for a day on a charge. I get the sense that the battery is starting to wane however.
          I happen to think it looks very handsome with its faux-metal rim, and I can see what people like in real metal phones, but from an engineering perspective polycarbonate really is the material of choice. The conundrum is how to get that elusive “premium” feel, without all the problems and vulnerabilities that come with metal.

      • Anthonydotcom

        My HTC Sensation is used by my kids still. That phone is nearly four years old now. Not sure why this two year battery issue always comes up. Besides if you’re coming to Android Authority, odds are you’re going to have a new phone in two years anyway. All cellphones are built to be throw away items.

    • The-Sailor-Man

      High end phone , doesn’t mean cheap aluminium tin can , you brainwashed ignorant.

  • Luka Mlinar

    Finally people came to their senses and see Samsung devices for the bloated, plastic POS that it is.

    • luka3

      so how much profit did your favorite company make?

      • Luka Mlinar

        Motorola is making more and more with every quarter.

        • luka3

          exact figures of net profits please let’s see how they are doing.

          • luka3

            why do you think google wanted to rid themselves of motorola? yes, enough said lol

          • Luka Mlinar

            Because Samsung gave them no choice.

          • Jayfeather787

            I don’t get it. Sometimes you say something smart. Other times you sound like a dick.

    • Clement M. Lukhele

      Not sure about that. Their phones, though good, are just too expensive .If the price is right then people would come back to Sumsang.

    • toboev

      I think you overstate your case. People are still buying Samsung phones in their droves. The S5 is selling in huge numbers. Last figures I saw placed it 3rd behind Apple’s latest two phones. But of course Apple have the whole iOS pie to themselves, Samsung has to share the Android pie with other worthy contenders. More power to Android for engendering healthy competition.

      All this story is telling you is that as the market matures, the market leader feels the pinch first. Nothing new there.

      • Luka Mlinar

        You can’t really looks at the ranking. If Samsung sells 3 times more phones than the 2nd Android OEM and then sells twice as much. That’s a 33% loss but Samsung is still #1. I think the profit drop paints a good picture by itself.

        • toboev

          ” I think the profit drop paints a good picture by itself.”
          Yes, but a picture of what? You seem to imply it paints a picture of a company suffering because it produces rubbish phones. I think it paints a picture of any market-leading company in a maturing market – margins get squeezed.
          If it were simply that nobody likes Samsung phones (because they are “plastic”, innit?) then I would expect that to show up in sale volumes.

          • Luka Mlinar

            A picture of how “people came to their senses and see Samsung devices for the bloated, plastic POS that it is”.

  • MasterMuffin

    ThL is smaller than OnePlus? What? Also OnePlus isn’t competition, nobody knows about them and those who do can’t buy :)

    And S5 really isn’t a high end phone compared to Z2, M8 or even iPhone 5s. Just got my father a Z2. I gave him all of these options and he liked S5 and Z2 but the premium feel took the victory for Z2. Samsung really needs a refresh like HTC did before M7

    • Amir

      I’m following uuuuu

      • MasterMuffin

        I got an email a few weeks ago from Disqus that said “Karma is now following you” o.O

        • Jayfeather787

          But you are too badass to follow anyone back.
          I am trying to remake my Disqus account, so I will be back. However, Disqus is kinda screwing me over, so give me 24 hours for Disqus to deactivate an account I made by mistake, only to make a new one.

          • MasterMuffin

            I don’t press buttons unless I know what they do. I have no idea what Disqus’ follow button does so I’ve decided not to click it :D
            You just couldn’t leave :)

          • Jayfeather787

            Yeah I miss downvoting comments too much.

          • MasterMuffin

            WHY DISQUS WHY do they allow guests to upvote but not downvote? Also it’s stupid that they took the downvote count away

      • Jayfeather787

        Everyone is.

  • Clement M. Lukhele

    The boys at Sumsang overinflated the prices of their devices and now it’s catching up with them.

    • Wangwang

      You are right. Smartphones used to be overinflated. Xiaomi and One Plus One would show you how much.

  • abcorangy

    Idiots are overreacting again. Look at the net profit Samsung made and then look up how all non-Apple companies are doing. Then, also look up how much all the “great budget” brands like Oppo are doing. It’s just one quarter (that’s 4 months). Samsung hater forgot one things: This is a company who dare to try new products and serve every segment of the market. You want every company to only sell one expensive phone for the whole damned year????? If you agreed, you’re a true dumb consumer. You need Samsung to do well so that “douchebag” like Apple & Microsoft won’t take you for a ride. We already know HTC & Sony are not up to the task.

    • luka3

      we will see how apple will do this Q2 and Q3

    • Insightful

      As an Android user, do you find it necessary to mention Apple to validate yourself or your purchase?

    • Mark Mann

      Your whole argument is for naught if you think a year is 16 months(which it would have to be for a quarter to be 4 months)… Other than that, polycarbonate is perceived as cheaper than metal, that much is true, because metal is higher cost than polycarbonate, and metal is heavier than poly… So heavier means higher quality, right? Samsung uses, and relies, too heavily on marketing… Their products are not of the quality their prices suggest they should be… If HTC or Sony had the marketing budget half the size of samsung, they’d be closer to the top… I’m an android fanboy, but samsungs products are crap, their customer service is abominable(personal experience) and as such I’d buy an iPhone before I’d buy a galaxy anything… I’m about to purchase my first polycarbonate phone(lg g3) after 5 years of metal phones(mostly moto droid family)..in my experience the build material has no effect on anything other than weight of the device(I’ve not had signal issues, and have had a strong signal where my husband and his poly phone have had none).. . So it is not due to build material that I dislike samsung

      • The-Sailor-Man

        Not at all . Aluminium is NOT higher cost than polycarbonate.
        And the BOM of Galaxy is ALWAYS higher than tin can iphones.

        • Mark Mann

          After doing some research and finding you to be correct, I still stand by what I said about people believing that a metal phone is higher quality simply based on feel.. A poly phone feels cheaper than a metal phone so that argument as we’ve now stated is silly.. . But also, as I’ve said, there are other factors in my extreme dislike of Sammy… The biggest one being that they have no clue what customer service is…also the fact that their phones, while being made of a more expensive material are not worth the premium price

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  • Stas

    No! Now we literally see consequences of sh*t S5 design.

  • Mike Bastable

    A strange set of replies…everyone asserting their fanboy our non-fanboy status. Samsung is to many the new Nokia…a huge range of quality Android phones, great innovation and a result the market leader. However the market matures again they need to shift some focus onto more targeted products and less handsets that are cheap and low spec. They will loose against the OEMs from China on price. What Samsung is,is like Apple, available, available in every country in ever town, in every phone store. This ensures sales. Their excellent customer service sustained update policies will ensure customer loyalty. Few will jump ship unless forced by price due to economic circumstances. Their decision lower inventory levels with promotions is cleverand will be successful. This combined with a coming range of new handsets with slightly revised design ethos and new materials will see them continue to grow and flourish. Samsung is not making the mistakes Nokia made. New manufacturers will emerge and individual handsets may be successful but to truly challenge Samsung they need to be global in ambition and also in service. In two years time we will still see Samsung, LG, Apple at the head of the smartphone markets. These are global companies with great products great service and they are cometently run. HTC, who knows.let’s all five millions to Iron Man. Sony…the handset business is just wrong for them. The middle tier companies might fail and be replaced by Oppo etc.
    And to answer the question asked…Samsung will continue to make huge profits, as long they continue to be smart and adjust their strategy when needed, as they seem be doing now good luck to them!
    (ps. I use LG and Apple)

    • abazigal

      Going by that analogy, are you saying that Samsung is destined to die at the hands of Apple as well, the same way Nokia did? :P

      • Clement M. Lukhele

        I really didn’t see Samsung following Nokia’s path . Samsung will continue dominating the Android space however they could price themselves out of the growth areas, namely middle tier market segment with their high prices.

  • DarxideGarrison

    I don’t think the era of high end smartphones are over. I think people are just tired of the “gimmicky features”, laggy TouchWiz, poor software updates.

    • Clement M. Lukhele

      Nothing is more annoying than Samsung’s update cycle. This I think Samsung does this to accommodate Touch wiz UI.

  • Paolo T.

    Not when Samsung has released Eleventy Hundred smartphones (that is NOT an exaggeration) that have almost identical performance and/or specifications… they will have a problem with ‘cannibalization’ – they should have stuck with the Galaxy S5 mini as the ONLY mid-tier phone of theirs, not released eleventy lower-tiered phones (I mean , The moto G and moto E just OBLITERATE(!) anything Samsung has to offer now at their respective price points.)

    P.S.: I feel like OnePlus is the union rallying on Wall Street against a big company (Samsung) and their policies – Yes, it will draw a crowd, a following, and you do make your point, but the company hasn’t been toppled, it’s still there, and yes they will take note of the policies the union wants, but the core systems that the union wants gone still remains. And by extension that applies to practically every other phone maker out there.

  • indio7777

    Silly headline. Will a peak of luxury automobiles mean they’re not made anymore?

    The market is saturated certain areas; doesn’t mean people won’t buy new high end phones when they’re ready.

  • Johnh24

    The market is saturated for sure but also It’s strong Korea currency makes less profit for Samsung. (If they made 5millon last year that means 4.3milloin this year. US dollars gets weak and weak evey day)

  • AvalancheRyder

    How is OnePlus One a viable competitior? You can’t even buy their phone but they are a threat to Samsung? Get real.

  • abazigal

    IMO, Samsung is simply reaping what they have sown, nothing more or less.

    They chose to flood the market with all manner of smartphones in a desperate bid to “win” market share from iOS, and they succeeded (albeit all too well). The end result is that while they do command a significant share of the smartphone market, they don’t have the corresponding profits to show for this “pyrrhic victory”. I feel the problem with Samsung is that they tried to get too big, too soon. Technology simply doesn’t improve fast enough to support the updating of 2 flagship phones every 9-12 months, and you spread yourself too thin because you are constantly trying to churn out new features to serve as selling points, often with mixed results. It’s like sprinting right at the start of a marathon instead of pacing yourself properly, just so you can boast about being at the front of the pack (even if it’s for just a short while). You are going to run out of steam eventually, and really, what’s the point?

    Contrast this with what Apple is doing. By releasing just one iPhone model a year, and by going with the same iPhone design every 2 years, Apple reaps incredible savings from economies of scale, because the fruits of their R&D gets amortised over a longer period of time (2 years, compared to Samsung’s 9 months). Likewise, I imagine it would be much more efficient to devote your resources to manufacturing just 1 model of iPhone (eg: you can save greatly by ordering the same component in bulk), rather than spreading yourself too thinly churning out all manner of smartphone designs.

    Apple has also managed to slowly but surely build up a loyal base of customers who are willing to upgrade their iPhones every 2 years (and some every year), which ensures steady demand and revenue. And let’s just watch to see how many people queue up for Apple’s next iphone6. Then we can conclude whether the market for high-end smartphones has dried up, or if it was just gross mismanagement on Samsung’s part.

  • AndroidBrian

    I think more and more people are holding on to there phones for 2 to 3 years. Over the last 2 years we haven’t had a significant leap in tech to makes the avg consumer upgrade there already good phones.