Earlier in the day we reported on another lacklustre quarter for Samsung’s mobile division, as the company prepares to report its seventh consecutive quarter of declining profits. It turns out that the Galaxy S6 Edge might be to blame for much of Samsung’s weaker than expected earnings.
According to the preliminary report, Samsung is expecting 48.0 trillion Korean won in consolidated sales and an operating profit of 6.9 trillion Korean won, which translate to a 4% decline over Q2 of 2014. As Samsung’s semiconductor and TV business are expected to grow, the blame is being laid squarely at the mobile division. More specifically, sales of the company’s latest flagship smartphones – the S6 and S6 Edge.
Samsung lack of production capacity for the Galaxy S6 Edge’s display have been well documented and the company has been attempting to address the issue for months. However, the problem is not so much that Samsung isn’t able to keep up with Galaxy S6 Edge demand, but rather that the Galaxy S6 Edge has had a direct impact on sales of the regular Galaxy S6.
According to sources familiar with the matter who spoke to The Wall Street Journal, Samsung misjudged the type of smartphones that consumers would be after. The company expected to sell four Galaxy S6 handsets for every S6 Edge variant and setup production accordingly. However, demand has ended up being much closer to a 50/50 split between the two.
As a result, Samsung has been left with Galaxy S6 stock that simply isn’t selling. Apparently the white variant is particularly overstocked. Even if the company could produce more Edge units, it would still have incorrectly invested large sums of money into excessive production of the regular Galaxy S6.
Since launch, Samsung is said to have reconfigured its manufacturing operations to help produce as many Galaxy S6 Edge units as are needed. Samsung has previously stated that it would be able to meet demand more accurately by the end of June, which would have just missed out on the Q2 figures.
Sales and profit figures could rebound in the third and fourth quarters, providing that the Galaxy S6’s popularity holds up. Even so, this is likely to be a costly miscalculation for Samsung, which was hoping to improve its profitability this year after the sharp declines of 2014.