An earnings drop of nearly a quarter shows that the smartphone market is no longer the cash cow it once was, and that’s making Samsung nervous.
The smartphone market isn’t what it once was is the story that can be found in Samsung’s latest earnings report.
The Korean giant posted profits of $7.1 billion in its second quarter, down 25 percent from the year prior. This comes in at $1.4 billion less than analysts expected, as Samsung cited that a saturated market with intense competition and slowing demand is dragging down its earnings. Samsung Mobile isn’t the only division impacted by this: Samsung’s display unit is also projecting a 76 percent quarterly profit loss due to slowing demand for its screens.
But what happened? Well, according to Samsung, a variety of things which caused a “perfect storm”. In financial filings Samsung cited everything from weak demand in an increasingly cutthroat Chinese market, to continued slackened demand in Europe, to phablets killing demand for tablets for the weak quarter. As reported by Reuters,IDC, a consultancy and research firm, believes global shipments growth will slow to 19.3 percent this year from 39.2 percent in 2013.
To put it simply, Samsung is facing the same problem as any other smartphone maker: the high-end market is saturated and stagnant. Innovation in the smartphone sector has slowed; there’s no longer a compelling reason to get a new Galaxy or iPhone. The only innovation right now is coming from firms like Xiaomi and Asus, which are both trying to put as much functionality as possible in low-priced (and thus low margin) phones.
Samsung tried to stop this cash hemorrhage, with the wearable market. But its venture to create a need for the product, the smartwatch, showed that there is none. In October, it was reported that the Galaxy Gear has a staggeringly high return rate of nearly 30 percent. Clearly this won’t be replacing revenue lost from smartphones anytime soon.
Samsung has yet to release guidance for its third quarter, but many analysts polled by news agencies predict that problems would continue into the next quarter.