Samsung Warns Investors of Massive Profit Decline
Samsung has enjoyed tremendous growth and profits over the past couple of years but that could be coming to a gradual end soon. The company has just provided estimates for its financial performance in Q2'14 and it does not look good.
Specifically, Samsung has projected earnings of around 7.2 trillion won (roughly US$7 billion). While that still sounds like a lot, it actually represents a massive 24.5% decline year-over-year - Samsung made around 9.5 trillion won in the same quarter last year. Analysts have earlier projected earnings of around 8 trillion won. Even if actual results are no where near this bad, this quarter would still mark a third consecutive quarter of profit decline.
The drop in profits, said Samsung, can be attributed to a stronger Korean won as well as weakening demand for smartphones. Additionally, while Samsung is still the world's top smartphone seller, it is facing increasing competition in the budget market due to Chinese manufacturers such as Xiaomi and Huawei.
Lee Seung-woo, a technology analyst at IBK Securities, said, "The earnings deliver a harsh reality check to Samsung that it is not Apple, but Samsung. Its strategy of selling phones at expensive prices will not work anymore, as Chinese rivals also offer good enough phones at much cheaper prices."
This view was echoed by other analysts and also tech journalists, who believe that Samsung has no software-based differentiation and competing on price alone is not a viable long term strategy.