The Korean electronics giant posts a 74 percent drop in its mobile business operating profits during the September period.
Brace yourselves. Not because winter is coming, but because Samsung has just revealed its financials and we won’t be surprised to know that the third quarter failed to show any improvement just like the company had predicted. As competition continues to increase, the company faces threats and challenges from all sides and this tough situation has led profits to tumble 74 percent year-over-year in its mobile business. On Wednesday the company had revealed that the company-wide operating profit had declined by 60 percent and this is worrisome since this dropping profits comes as its fourth consecutive decline and is the company’s lowest since the second quarter of 2011. Another issue was the decline in revenue too for the September quarter.
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At the start of this month the company has predicted this result and had warned against a possible decline in the operating profits of its third quarter. The prediction said that the profits would go down as much as 62 percent and the sales would also decline by 22 percent. This is predominantly happening due to the rising manufacturing costs in this sector and the constant need to keep up with the quality the company offers and the tough competition.
The IT & Mobile Communications division has also shown a decline in profit for the second period in a row and this fall can be attributed to lower average selling price for the smartphones. Much of the demand for the Samsung phones was for the older models which were lower priced and a higher percentage of mid range phones was bought by customers. The average selling price wouldn’t have been lower had Samsung managed to sell more of its higher end phones and the latest models which came out this year such as the Galaxy S5.
Side by side Samsung has also shown hope and has warned that the earnings might rise in the current period due to the display and components businesses, but the mobile business will likely suffer in the months to come. There was no mention of when the company was expecting to see a turnaround in this trend. In a recent press release, Samsung said "Although the company anticipates a demand growth for the recently launched Galaxy Note 4 and new middle-end SMARTPHONE models, uncertainty remains for the [mobile] division, due to the year-end surge in competitor SMARTPHONE launches, which may require a potential increase in marketing expenses associated with year-end promotions.”
The results from the consumer electronics division were also not very impressive. This division of the company is responsible for making everything from TVs to home appliances and it couldn’t meet the company’s expectations for this third quarter. This shortfall of the division came due to declines in the average selling price of TVs and an earlier-than-expected end to the peak season for air conditioners as stated by the company. However, Samsung expects that the fourth quarter is going to experience “strong seasonal demand for TVs.”
The company has revealed a fourth consecutive quarter with profits declining tremendously and it only goes on to say that the smartphone king is surely facing some pressures in the highly competitive mobile market. Looks like Samsung too, like all others in the segment, have been hit hard by the saturation which has led many to experiment in the wearables section now. Earlier this month Samsung had said that it believes "new smartphone lineups featuring new materials and innovative designs, as well as a series of new mid- to low-end SMARTPHONES with strong competitive positioning on both hardware specifications and price," can help boost its results. However we must be ready for anything because the current scenario shows that things might only get worse for Samsung.