Samsung’s financial results continue to worsen, as the company struggles to realign itself in response to fierce competition and difficult market conditions.
Samsung released todays its earnings guidance for Q3 2014 (July to September) and, while it’s still raking in billions, massive profit declines paint a worrying picture for the close future.
Profit down 60% YoY, 43% QoQ
For the July to September period, Samsung estimated a profit of 4.1 trillion won (US$3.8 billion) and 47 trillion won (US$44 billion) in revenue.
Samsung’s Q3 profit is 59.6 percent less than the profit from Q3 2013, and 42.98 percent less than Q2 2014. The last time Samsung recorded less than 5 trillion won in profit was in Q4 2011!
In the statement accompanying the earnings guidance, Samsung explained that the plummeting profit was caused by lagging performance in its flagship mobile division:
Smartphone shipments increased marginally amid intense competition. However, the operating margin declined due to increased marketing expenditures and a lowered average selling price (ASP) driven by reduced proportional shipments of high-end models coupled with price decreases for older smartphone models
So, while Samsung managed to sell more phones than last quarter, those phone were cheaper on average, which combined with the increased cost of selling them, took a chunk out of Samsung’s profits.
Samsung’s component business, which depends heavily on the health of the device business, also took a hit, with the exception of the chip unit, which was buoyed by strong demand for memory chips used in PCs. The company did not release figures, but some analysts think the chip business could bring in more money than the device business, which happened the last time in Q2 2011.
Good news from the chip business
To be clear, Samsung is far from being in trouble. Declining as it may be, the $3.8 billion profit is more than most technology companies earn in years. However, the decline is worrying, and the technology giant doesn’t seem to have a clear plan to reverse it, at least in the short term. Like a supertanker that keeps moving many miles after its engines have stopped, Samsung is too big to change course in just a quarter or two.
Samsung’s big hope for the end of the year is the Note 4, which will go on sale in the US and Europe around mid-October. Reportedly, the company has big hopes for the device, although competition is especially fierce this year, with a bevy of Android powerhouses and Apple’s new iPhone 6 Plus.
Samsung will announce full results for Q3 later this month, but major differences are unlikely to occur.