Samsung’s Q3 profit plunges to near three-year low

31/10/2014

Seoul: Samsung reported its smallest quarterly profit in nearly three years Thursday as its key smartphone business faltered under competition from Apple`s iPhone6 and Chinese handset makers in an increasingly saturated market.
Net profit for the South Korean electronics giant amounted to 4.22 trillion won ($4 billion) for July to September, marking a dramatic fall of 48.8 percent from a year ago, and the lowest figure since the fourth quarter of 2011.
Operating profit also dropped 60 percent from a year ago to 4.06 trillion won, while sales tumbled about 20 percent to 47.4 trillion won, Samsung said in a statement.
The firm`s mobile unit reported operating profit of 1.75 trillion won in the third quarter, a dramatic decline from 6.7 trillion won a year ago.
Despite a slight increase in unit sales volume, actual sales revenue tumbled to 24.6 trillion won from 36.6 trillion won.
"The average selling price of smartphones declined due to an increased share of middle- to low-end smartphone sales and price reductions of existing smartphone models," the company said.
The third-quarter performance by the world`s largest manufacturer of smartphones and televisions followed a 20 percent drop in profit in the second quarter.
The company has a diverse product line ranging from memory chips to home appliances, but more than half its sales are generated by mobile devices.
The latest edition of Samsung`s previously all-conquering Galaxy S smartphone met with a lukewarm response on its launch in April. It was also forced to introduce the new edition of the oversized smartphone Galaxy Note earlier than scheduled in September as the latest iPhone6 from US rival Apple enjoyed better-than-expected demand.Samsung initially pioneered the market for "phablet" devices -- sized between a smartphone and a tablet computer -- when it introduced the Galaxy Note series in 2011.
But the firm has come under pressure with the release of the iPhone 6 Plus, which also boasts a large screen.
And in the low- to mid-range smartphone segment, Samsung has faced a growing challenge from Chinese firms nipping at its heels in key emerging markets including China.
Samsung saw its leading share in the global smartphone market slip to 25.2 percent in the second quarter of this year from 33.3 percent a year ago.
At the same time, Chinese firms Huawei and Lenovo saw their combined share grow from nine to 12.3 percent, according to market research firm IDC.
While voicing optimism Thursday over sales of the Galaxy Note 4 and new middle-end smartphones, Samsung acknowledged that "market competition is expected to further intensify".
"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," it said. Kim Hyun-Joon, senior vice president of Samsung`s mobile unit, vowed to dramatically reshuffle product lineup to "actively respond" to the needs of the mid and low-end markets.
"Our mobile unit is going through a temporary difficulty, but we are trying to maintain a steady growth by ... fundamentally changing our business structure," he said.
Samsung said it believed growth in the low-end smartphone sector would see it account for half of the global market next year, Samsung said.
"Samsung is struggling in the Chinese market and it may take a while until the situation improves," said Lee Min-Hee, an analyst at Seoul-based IM Investment and Securities.
"I don`t think they can improve the market share in the Chinese market, even in the fourth quarter," he said.
China`s Xiaomi dethroned Samsung as the top smartphone seller in China, with its share rising to 14 percent in the second quarter followed by Samsung`s 12 percent, according to estimates by the market research firm Canalys. Xiaomi`s devices typically sell for around $100, while phones in Samsung`s headline Galaxy series are priced at more than $500.

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