Samsung expects profits to fall for second quarter in a row

8 Apr 2014

The Samsung Galaxy S5

Korean consumer electronics giant Samsung has released estimates that indicate profits fell by 4.3pc during its first quarter ending March. This will be the second quarter in a row where profits have declined at the company.

Samsung estimates first-quarter sales will come in at 53trn won, compared with market expectations of 54.58trn won.

Margins are the name of the game and the company is coming under pressure from new lower-cost smartphone makers arising out of China.

The performance of the company’s mobile unit is critical, as it typically delivers 70pc of the consumer electronics maker’s overall profits.

The smartphone maker, which is hoping the launch of its new Galaxy S5 that is 10pc cheaper than its predecessor the S4 will transform its fortunes, saw operating profits fall by 4.3pc to 8.4trn won (US$7.96bn).

Is there growth left in smartphones?

After nearly five years of consistent growth, all eyes are on the smartphone industry to continue to grow, especially since markets like the US and Europe are nearing saturation.

Pressure for Samsung continue to grow could be offset by the ability of more nimble rivals, such as Huawei, which can offer lower-cost smartphones in the few remaining growth markets, such as China.

The launch of the S5 in Samsung’s home market of South Korea two weeks ago has been less than spectacular, stymied by a government ban on mobile operators selling mobile devices.

In an effort to free itself of the declining fortunes of the smartphone market and be prepared for the next tidal shift in technology – wearable devices – Samsung has brought out a number of smartwatch devices.

But how well it will handle the transition as smartphones saturate is a question all smartphone makers must be asking themselves.

Samsung’s final Q1 results are expected out on 25 April.

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