Samsung’s Q2 Profits Below Expectations

Samsung’s Q2 Profits Below Expectations

Korean device manufacturer Samsung stated that according to its preliminary figures, second-quarter revenues were KRW 52 trillion (US $51.5 billion), down from 54 trillion (US $53.5 billion) in the same quarter last year, and that operating profits fell 23 percent year-over-year, to KRW 7.2 trillion (US $7.1 billion). Analysts had expected profits of KRW 8 trillion (US $7.9 billion). In a statement, Samsung attributed the shortfall to increased competition in China and Europe and to soft smartphone and tablet sales.

Tarifica’s Take

Samsung’s statement sought to contextualize the disappointing results and sound a somewhat optimistic note for the near future: “The second quarter is a seasonally weak period for smartphone demand in China. Samsung also saw an increase in inventory due to price competition and a weaker demand for 3G products ahead of the expected growth of 4G LTE products in the Chinese market … the company cautiously expects a more positive outlook in the third quarter with the coming release of its new smartphone lineup.” Nonetheless, the preliminary Q2 figures for the manufacturing giant tell a larger story.

One cause of Samsung’s difficulty is the rise of the big-screen (5- or 6-inch) smartphone, sometimes known as the “phablet,” which has been championed by none other than Samsung. Such devices have been cannibalizing tablet sales. In addition, with the maturation of smartphone technology, users are finding that their devices have sufficient functionality and durability that they do not have to upgrade them as often as before. And finally, Samsung and other high-end device manufacturers, such as Apple, are finding their domain encroached upon by cheaper and simpler handsets that, with the advance of technology, can now perform enough key smartphone functions to deter many consumers from spending the extra money on a state-of-the-art phone. The Samsung Q2 figures are by no means the last word on the Korean giant’s business, but they are part of an evolving narrative about the maturation of the worldwide device market.