Samsung issues guidance: another fall in profits on the way

For a seventh consecutive quarter, the South Koren tech giant will report a fall in operating profit

Samsung has reported a seventh straight year-on-year fall in quarterly operating profit, which suggests that the company’s flagship device is not selling as well as was expected.

Preliminary earnings guidance for the second quarter suggests that the South Korean tech giant will report sales of Won48tn (£27.86bn) for the three months to the end of June. Operating profit is estimated to come in at around Won6.9tn, 4% below analysts’ expectations.

Sales of the new flagship phone – or lack thereof - have played a significant role in the quarterly decline. The phone maker launched two models, the Galaxy S6 and the Galaxy S6 Edge. The S6 has failed to excite consumers, while the Edge has run into a series of manufacturing problems. It turns out it is quite hard to build curved screens at scale and this tiny detail has meant that demand continues to outstrip supply.  

But the financial woes that Samsung faces are nothing compared to what it would be facing had it not launched two new flagship devices.

The most significant problem that the world’s largest phone manufacturer faces is that it is fighting a battle on two fronts. On the one hand, it’s fending off competition from the likes of Apple at the high end of the market and then on the other, it is trying to compete directly with the likes of Xiaomi, which is selling increasingly advanced smartphones for a dime a dozen.

It is this between the proverbial rock and hard place, that Samsung finds itself and without a renewed sense of direction, it is difficult to see just how the technology giant can plug the hole. Of course, it has a diverse portfolio of products and solutions, many of which are sold through the channel; but as Apple has proven, the big money is in mobile.

Gartner research director Roberta Cozza said that if Samsung wanted to continue playing ball in the major leagues, it was going to have to carve out a new niche.

"With Apple dominating the premium phone market and the Chinese vendors increasingly offering quality hardware at lower prices, it is through a solid ecosystem of apps, content and services unique to Samsung devices that Samsung can secure more loyalty and longer-term differentiation at the high end of the market."

Gartner said that while Sammy narrowly maintained the title of global smartphone leader in Q12015, its market share fell from 30.4% to 24.2%.

The continued demise of the smartphone division means that Samsung’s semiconductor division has one again become its primary cash cow; but even here, the cracks are beginning to show, with margins being squeezed on its D-Ram chips.

Fate, it seems, is not without a sense of irony as the second half of the financial year could well look a lot healthier for Samsung. Why? Because it has a very large contract to produce the processors for - yep, you guessed it – the next iPhone.

It’s a funny old world.



Read more on Finance and Credit