Samsung said on Friday that it
expected weaker profit and revenue, which analysts attributed to slowing sales
of high-end smartphones. This is a trend that also bedevils Apple, its main
rival. Samsung aim its Galaxy models at the top end of the market. Apple sells
its iPhone to these customers, too. And while sales of smartphones continue to
grow over all, the rate of increase for the more expensive devices has been
easing in recent months. In recent days, BlackBerry and HTC, the Taiwanese
phone maker, have also reported difficulties selling advanced smartphones. According to comScore (a market research firm),
In the United States, more than 58 percent of adult consumers who own
cellphones own a smartphone, only three years ago, it was 20 percent. The real
problem may be that much of the growth in smartphone sales in coming years will
be at the lower end of the market, where Chinese manufacturers are gaining
share. Samsung simply does not have the most appealing models for those
consumers. As smartphones become increasingly commoditized, prices will fall
and profit margins will shrink. “The
concern is the future of the smartphone market, which is already saturated at
the high end,” said C. W. Chung, an analyst at Nomura Securities. “The
smartphone industry may be becoming more like the PC industry,” in which
consumers make their buying decisions mostly on price, despite attempts by
manufacturers to differentiate their products. Samsung said it expected to post
an operating profit of 9.5 trillion won, or $8.3 billion, for the second
quarter, a 47 percent increase from a year earlier. Investors were not
impressed. Analysts had been modeling for $51.4 billion in sales and $9.3
billion in operating income. As a result, shares fell nearly 4% on the figures.
After losing 13% of their value in June, Samsung is now 20% off its peak.
Samsung is currently
experiencing exactly what Apple
(NASDAQ: AAPL ) has been going through over the past 10
months. The Mac maker also put up its own all-time record quarter in terms of
revenue, iPhone units, and net income, yet shares plunged 11% in January. Both
companies face lofty investor expectations that are becoming increasingly
difficult to meet. Big numbers alone just won't cut it anymore. Apple investors
weren't satisfied with the 5 million iPhone 5 units that were sold during
launch weekend. Samsung investors think the company should have been able to
ship more than 20 million Galaxy S4 units in the first two months. Analysts
have continued to reduce estimates on the Galaxy S4, although Samsung doesn't
regularly disclose unit sales or product mix. pple reports total iPhone units
but doesn't detail product mix, either. ISI Group analyst Brian Marshall
estimates that the iPhone 5 sold twice as fast as the Galaxy S4 at launch,
hitting 20 million in unit sales after just 25 days.
The high end of the smartphone
market is quickly maturing and reaching saturation, which is presenting
headwinds for both Apple and Samsung. Apple is widely expected to release a
mid-range iPhone model for the first time this year, while Samsung has long
played a wide plethora of price points to rise to the No. 1 vendor by volume.
Samsung's mobile business
contributed 74% of all operating income, underscoring how important its
smartphone business is. Some analysts believe that the semiconductor component
business is being underappreciated, as Samsung's vertical integration is a
distinct competitive advantage.
However, Apple is reportedly
moving as much component business as it can away from its largest rival and has
inked a deal with Taiwan Semiconductor to manufacture future processors. That
transition alone could hurt Samsung's component business to the tune of $5
billion in annual sales. The semiconductor segment represented 12% of operating
income in the first quarter.
With Samsung's flagship Galaxy
S4 launch in the rearview mirror and unit sales proceeding at a disappointing
pace, Apple has an opportunity to win back investor favor when it launches new
iPhones in just a matter of months.
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