Has the smartphone market peaked? Poor Samsung and HTC results raise questions

5 Jul 2013

The question ‘has the smartphone market peaked?’ comes to mind after both Samsung and HTC delivered poor financial results. Samsung’s latest results were disappointing, with sales figures falling short of expectations while HTC delivered a massive 83pc decline in profitability.

The phones have never been more beautiful, nor more sophisticated and powerful and for the foreseeable future these devices will continue to change how we conduct commerce, communicate and live our lives.

The mobile industry is infused with an ambition to connect the next 1bn internet users via these sophisticated pocket devices, but perhaps the rude financial health so far associated with giants like Samsung, thanks to smartphone sales, are coming to a close.

Don’t get me wrong, Samsung is still in rude financial health – it forecasts a US$8.3bn operating profit, up 47pc on last year.

However, reduced earnings caused by disappointing sales of the latest Samsung flagship the Galaxy S4 sent the Korean electronics giant’s shares plummeting by 3pc to 4pc overnight and the shares are down 17pc since June due to investor concerns about handset margins.

This is a critical situation for Samsung, since its mobile division contributes 70pc of the company’s total profits.

Losing momentum

For HTC, the Taiwan-based manufacturer, the situation is even more dire. Delays in bringing out its flagship HTC One have only served to compound its financial predicament.

Despite strong sales of the HTC One, the company posted an 83pc decline in second-quarter net profit, missing analyst estimates.

Unaudited net profit for the first three months ended 30 June was NT$1.2bn (US$7.2m), down from NT$7.4bn a year ago but much improved on the NT$85m last quarter.

HTC’s second-quarter revenues fell 22pc to NT$70.7 (US$41.9m) from NT$91bn a year ago.

The key here is momentum. Smartphones aren’t cheap and represent a considerable investment by the average mortal. It appears that both Samsung and HTC are struggling to maintain momentum in markets that are largely saturated by this point and the key now is the willingness of consumers to replace their devices more frequently.

In a slower growth market, the initiative may swing back in Apple’s favour as the Californian tech player prefers to bring out fewer models of expensive devices that deliver more profit in the long run as opposed to churning out large volumes and varieties of low-margin devices typical of the Android ecosystem.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years