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Samsung forecasts decline in operating profits

Samsung Electronics has revealed that it expects to make an operating profit of 8.4 trillion won for Q1 2014, a decline of 4 percent compared to Q1 2013.
April 8, 2014
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It’s financial statement season and Samsung is the next technology company to announce that it’s experiencing tougher times.

Samsung Electronics has revealed that it expects to make an operating profit of 8.4 trillion won in the quarter for January to March this year, that’s approximately $7.9 billion or £4.8 billion. Whilst that still looks like a healthy level of income, this result would mark a 4 percent decline in profit compared with the same period last year. Not only that, but Samsung faced a similar 6 percent decline in operating profit in the previous quarter as well.

Whilst Samsung may not be struggling with quarterly losses like HTC, there seems to be a squeeze on profits across the technology sector, particularly in the mobile space. Some analysts attribute this to declining margins in the smartphone market, as well as a general lack of growth in the premium sector of the market. The smartphone business is as competitive as ever, but cost cutting in the pursuit of capturing and maintaining market share is having a negative impact on profits.

Samsung stock April 2014
Unlike some other smartphone manufacturers, Samsung’s diverse range of products is helping to see the company through the smartphone squeeze. The stock price remains near its high.

Of course, these figures don’t take into account the global launch of the company’s new flagship Galaxy S5, due to go on sale on April 11th, which is sure to have a positive impact on Samsung’s revenue and profit margins. We have already seen that the handset has made a strong start in South Korea, despite the partial sales ban. However, the Wall Street Journal is not particularly optimistic about the Galaxy S5’s sales expectations, given the mixed reception of some of the handsets features, or lack thereof.

“What Samsung needs to do this year for additional growth are things like cost reduction and reducing marketing costs,” Greg Roh, HMC Investment and Securities.

To Samsung’s credit, the company is already diversifying always from the stagnating smartphone market, a move which could help it maintain a healthier profit margin than the competition, see growth in areas such as wearables for example. We will just have to wait and see if the Galaxy S5 can surpass the last generation’s sales figures.