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SAMSUNG SAID NET profit plunged almost 20% in the second quarter as competition from cheap Chinese phones and the strong won saw sales slump in its key mobile business.
The South Korean electronics giant said net profit came in at 6.25 trillion won (€4.5 billion), down 19.6% in the first on-year decline for nearly three years.
Operating profit stood at 7.19 trillion won, down 24.6% from a year ago, while sales tumbled 8.9% to 52.35 trillion won.
“The second quarter was affected by several factors including the slow global sales of smartphones and tablets and escalating marketing expenditure to reduce inventory,” the company said in its earnings report.
“The appreciation of the Korean currency also chipped away at this quarter’s operating profits, which amounted to about 500 billion won in missed revenues prompted by the foreign exchange market,” it said. The firm added that the second half of 2014 would “remain a challenge”.
The won is currently running at six-year highs against the dollar, hitting South Korea’s export-driven economy.
Cautious optimism
Thursday’s figures were in line with earnings estimates released earlier this month, when Samsung also issued an explanatory note attributing the profit decline to increased competition from cheap Chinese devices.
Samsung had expressed cautious optimism about a more positive third quarter with the release of its new smartphone lineup, and a much lower marketing spend compared with the second quarter.
But while the company is expected to roll out a new version of its popular oversized Galaxy Note smartphone, the next quarter will also see the expected launch of the iPhone 6 by main high-end rival Apple.
Alarm bells have been sounding for a while over Samsung’s reliance on smartphone sales in mature markets such as Europe and the US.
Efforts to expand sales in emerging markets, most notably China, have stumbled over the growing challenge posed by smaller rivals producing cheaper handsets.
Kim Hyun-Joon, senior vice president of Samsung’s mobile unit, vowed to “act more aggressively” in China by rolling out more mid- and low-end phones.
“There are concerns about profit margins being squeezed in a short term… but growth of the low- and mid-end market is a global trend,” Kim said in a conference call.
“We will respond more aggressively to meet demand in the Chinese market… in the latter half of this year by introducing more products with better specification as well as better price competitiveness,” he said.
But he added that concessions on price would probably prevent and improvement in mobile unit profits in the third quarter.
Samsung’s share price took a beating on the earnings news, closing 3.73% lower on Seoul’s main stock exchange.
‘Smartphone heyday over’
The world’s largest smartphone maker has a diverse product line ranging from memory chips to home appliances, but more than half of its profits are generated by mobile devices.
Second quarter sales of its mobile unit fell 20% on-year to 28.45 trillion won, while operating profit slid nearly 30% to 4.42 trillion won.
“You can say Samsung’s smartphone heyday is now over,” said Greg Roh, a Seoul-based analyst at HMC Investment Securities.
“Given that companies are now competing over price rather than hardware specification, the key challenge will be how to minimise the pace of profit decline,” he said.
The consumer electronics unit – selling products from TVs to refrigerators – saw operating profit surge 80% on-year to 770 billion won, but not enough to offset the decline in the mobile business.
April saw the global roll-out of the latest version of Samsung’s flagship Galaxy series smartphone, the Galaxy S5, which came with a free premium software bundle valued at more than $500 as the firm sought to pull in buyers tempted by cheaper models from Chinese rivals like Lenovo and Huawei.
Initial sales of the S5 were positive, although critics said it offered little in the way of real innovation to set it apart.
There is a general consensus that smartphone evolution has hit a barrier that will only allow incremental improvements on existing design and technology, rather than market-changing reinvention.
According to International Data Corp., a record-high 295.3 million smartphones were shipped worldwide in the second quarter.
Huawei nearly doubled its shipments from the same quarter a year ago, while Lenovo also weighed in with strong performance, IDC figures indicated.
Samsung remained the world’s top vendor with 74 million handsets shipped, but saw its overall market share slip seven percentage points to 25.2%.
This is getting hilarious at this stage. At what stage are all these supposed “intellectuals”, “intelligent politicians” and lest we forget the blessed academic insulated economists, going to get it! It aint working lads, so I know uprooting the whole system puts all your publicly paid gravy trains at risk but sher that’s just tough! Wait for Italy to go caput next and then just wait for the meltdown. Any chance the journal would get all our learned economist friends like Mr Whelan on here? Didn’t he tell us we’d have €700 billion at our disposal if we voted Yes? There’s €100 billion gone already and markets are still tearing Spain apart. You just have to question credibility at this stage! Oh dear oh dear, everyone feathering their own nests while Europe burns!
thank god for all the intuitive geniuses who write on the journal
That 700 billion alone will only last for Spain. Italy and France are in the waiting room.
Hence my policy not to invest within the Euro zone.
In the longterm the Euro will falter as we know it.
That is of course just my opinion.
What is yours?
Joe, there’s no need for any intuition here. A cursory study of economic history clearly demonstrates that there is no easy or painless slution to this crisis.
Over eighty years ago, Ludwig von Mises forewarned the Wall St. crash with this now ominous quote. “There is no means to avoid the final collapse brought about by credit expansion..”
We have just lived through the largest expansion of credit in the past 40 years. Expect a collapse of similar scale.
Just looking at Richard Bruton here on tv3 news saying that the Spanish bailout has stabilized the situation are they for real this government, we need to get out on the streets enough is enough
Sure in fairness Richard is talking bull. Sure wasn’t it the fiscal compact that was going to provide stability?
So which countries have signed up for the fiscal compact? Greece? Yes. Spain? Yes. Ireland? Yes (or soon to do so as the referendum was passed). Portugal? Yes. Anyone notice a pattern her? Have any other countries ratified it?
It’s all about the positive signals, and the stability, we’ll be graaaaaand. There are positive signals everywhere now, nothing to worry about. It’s sorted.
Economic issues like this will lead to massive social upheaval, my money’s out of Irish banks! And have started to become fully self sufficient for food … City folks will look well when the powercuts come
In 1971, the gold standard system, established at Bretton Woods, was abandoned in favour of a fiat currency system with the US dollar positioned as the global reserve currency. This allowed the US to bridge funding gaps, caused by the cost of funding both the Vietnam war and the ongoing Cold war with Russia.
The world benefitted greatly from this momentous decision.
Firstly, the US, liberated from the monetary shackles of the gold standard, could finance enhanced military expansion/adventurism without subjecting American voters to onerous levels of taxation.
Secondly, fiat currency offered enhanced economic capabilities to central planners (governments, central banks). The volume of currency supplied into the economy could be increased to stimulate growth (monetary easing) during recessionary episodes. This was particularly opportune for nations like the US & Britain as their domestic manufacturing industries were in decline in the 1970′s. In both these nations, uncompetitive businesses were allowed to fail as any economic impacts were, or would be, mitigated by a, soon to be, thriving banking and financial services sector courtesy of the enhanced monetary capabilies now available to central planners.
An anomaly of fiat currency is it’s requirement for constant monetary expansion and it’s propensity to generate credit fuelled booms and debt. As fiat currency holds no intrinsic value, to ensure monetary stability all new currency is issued as debt. Central banks issue new currency to governments and Market participants as collaterallised debt. To allow for repayment of this new currency (debt) the volume of new currency must constantly increase (constant monetary expansion). Needless to say, the rate of monetary expansion has increased exponentially over subsequent decades.
http://www.chrismartenson.com/crashcourse/chapter-8-fed-money-creation
While governments issue bonds to their central banks to access new currency, Market participants faced increasing difficulty sourcing, the expotentially increasing quantities of securities required to access new currency. The danger of a collateral drought were that the wheels would come off the accelerating fiat currency merry-go-round.
In the US, this problem was overcome by issuance of toxic securities. In many cases these were facilitated by the expanding subprime mortgage market.
European banks, as well as trading in toxic securities also, accessed collateral via the government bonds of nations, whose creditworthiness had recently been enhanced, such as Greece. Also, newly created collateral courtesy of credit-fuelled property booms in countries such as Spain and Ireland.
Ron Paul!
Bring back the gold standard
I don’t entirely agree Dmc. The twentieth century was dominated by two currency systems (or variants). Firstly, the gold standard up until 1971. This was abandoned because it did not provide enough liquidity for free-spending governments and properly functioning economies at the same time.
Then fiat currency which we will soon see disappear down a sinkhole of inflation and debasement.
The ideal solution is a currency system where the supply of currency matches the demand for currency. While there is not an oversupply as we currently have now with paper money.
Mexican Hugo Salinas Price has suggested a hybrid duel currency system. This involves the issuance of paper currency long side the issuance of silver coins.
US Professor Larry White goes a step further, suggesting complete liberalisation of the issuance of currency.
Either system could prove extremely useful for Ireland in the near future.
http://www.freebanking.org/2011/09/13/the-free-competition-in-currency-act-of-2011/
Why can’t the create a separate vehicle for bailing out banks on their own? Think we might have had a glimpse of what would happen this morning. Spanish bond yields fell until it became apparent that Spain, and not it’s banks, was on the hook afterall
The EU/ECB had a chance in 2009 to resolve this, by being radical then. They refused and dithered, looked at the German economy, saw it was doing fine and left it at that.
The problem festered and grew, growth collapsed under austerity and the debt remains. Now growth is stalling across all countries, including the so called core. Holland heading in to a recession and Germany will as well.
This is funnier than my Fr Ted boxset!!! All this crap is caused by fear and stupid clowns gambling with the stockmarkets. The funniest thing is governments know this but wont do anything about it!!!
Batten down the hatches! This is going to be a bumpy ride. The euro in its current form looks doomed. No more band aids left. The game is up. The euro political zombies have bottled it.
there is one simple, tried and tested solution and its called bankruptcy.
The conspiracy theorists think this banking crisis is to force the countries into a united states of Europe controlled by the big banks..what a ridiculous idea. Idiots!!
Although who s running Greece and Italy at t moment…hummm, nah it couldn’t be bankers??
Waterford do ur homework it’s actually not a theory anymore it’s fact . The bankers are actually sucking the world economies dry . It’s down to fiat currency and for fiat currency to survive it must always have ppl spending that’s why you have Christmas valentines day paddy s day Easter the currency must always be circulating . There’s no solution fiat currency does not work . Our civilisation is going to collapse the way it’s going so the ppl in charge may see this as a reason to create a super communist state where everything I’d controlled .
Can we have more bandaid please, the bit we thought fixed Spain has vanished, where will it all end
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