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Samsung Electronics forecasts 60% fall in quarterly profit

95 points by davidbarker 12y ago

jonnathanson 12y ago
It's a side note in this article, but those unfamiliar with Xiaomi should do some light reading on the topic. It's a controversial company that publicly aspires to be the "Apple of China," and is often accused of simply ripping off Apple designs. My hunch is that we'll hear a lot more about Xiaomi in the American press in the next few years, even if in passing, and just as a curiosity. Xiaomi is not the only reason Samsung's been hurting. But its dirt-cheap pricing strategies have taken a serious bite out of Samsung's position in the crucial Chinese market.
- Brajeshwar 12y ago
  And Xiaomi is targeting the humongous Indian Market like crazy. I was once at an off-beat pre-launch for one of their new product (I hid my iPhone at all times) and they're super focused on getting the locals to get to Xiaomi phones. They are pretty successful successful in India and they are Indianizing their offerings for the Indians.
  - aaronbrethorst 12y ago
    Indianizing their offerings for the Indians. what does this entail?
    - Mikeb85 12y ago
      Localized apps mostly. Many countries have their own social networks, search engines, ecommerce sites, etc...
- ww520 12y ago
  Xiaomi just overtook Samsung's market share in China. It sells cheaper priced phones with similar specs. Samsung's margin was hurt because of that. Xiaomi is expanding internationally. Samsung's margin will be further eroded. It's like the war of the clones back in the PC days, where Compaq the clone leader was cobbled by other better priced clones when all the clones had essentially the same feature.
  - bhouston 12y ago
    My prediction: Xiaomi is only two years away from a serious entrance into the North American or European market and that entrance will be very disruptive for the existing market players, just like it has been in other markets that Xiaomi has entered.
    - seanmcdirmid 12y ago
      Xiaomi can't really enter western markets until its designs are more original, otherwise they would be sued out of existence. It will be interesting to see if and how they manage that transition. Also, Xiaomi is not a very good value. Meizi provides better quality for a similar price if you are into the low end.
      - NicoJuicy 12y ago
        Xiaomi releases models in Europe...
- josephlord 12y ago
  It is the cycle of things. European industrial dominance was undercut by low quality American knock offs that then went further up the market. Japan undercut the American market with low cost and quality products and then looked like they were going to dominate the world. Korea undercut Japan with low quality products and then went upmarket. Now China is about to... The key markets have changed since the industrial revolution but last century or so it can most clearly be seen in cars and electronics.
krschultz 12y ago
I'm a full time Android developer. I have to wonder, what % of the slip is Android overall and what % is Samsung specifically. I have to say I'm not pleased with the quality of the latest Samsung devices. Motorola, LG, and HTC all seem to be making higher quality phones.
- MBCook 12y ago
  But at this point the other Android manufactures (at least that have a good presence in the US) aren't making any money off Android phones, only Samsung was. If Samsung's profits are falling as an Android manufacturer where does that leave users? It's not like Samsung was selling below cost. Without them the others would have a higher market share but would they actually become profitable? Or is there just a glut of Android devices on the market to the point that no one would have an easy time making a profit in the current environment? Is this just a sign of a shake-up?
  - ancientworldnow 12y ago
    On your not making any money comment, HTC has been profitable the past two quarters (https://gigaom.com/2014/10/03/by-managing-costs-htc-sees-another-profitable-quarter/ https://gigaom.com/2014/10/03/by-managing-costs-htc-sees-ano...) and LG has also been profitable in part due to their mobile division (http://www.lgnewsroom.com/newsroom/contents/64590 http://www.lgnewsroom.com/newsroom/contents/64590). Motorola seems to be heading towards profitability as well. Perhaps Samsung's decline has been in part to the success of these other handset manufacturers?
    - MBCook 12y ago
      That's good to know since Samsung used to be eating everyone's lunch and it was becoming a two horse race. As an outsider to this whole thing (Apple guy with little interest in buying an Android phone at this time) it has always seemed like there was a pretty big oversupply unless you only considered the flagship phones (and even then it's still arguable). The market share between the various Android manufacturers starting to even out sounds good to me, but I wonder what it would do for prices and how that would effect Android vs. iOS.
r00fus 12y ago
Something to note in this article - this is Samsung Electronics - combined mobile, TV and various other electronics manufacturer. I wonder how bad the mobile division is doing if the entire electronics company is forecasting a 60% profitability drop?
yongjik 12y ago
One tidbit not mentioned is that Samsung's Emperor Lee Kun-hee is in a coma (most likely brain-dead) for several months, and his son is not officially the Emperor... I'm sorry, I mean the CEO of Samsung group yet, because Lee the father is not officially dead. So, many mid- to high-level managers in Samsung could be postponing highly visible projects until the new leader steps in and clears up which way the company will be heading. (I once heard, from someone in a different Korean company, that there are implicit agreements to not be "too good" on the book in such a situation: if your company does just as well when the beloved leader is on bed / in prison / whatever, then the leader might not be the reason for the company's success. Can't have that.)
- zo1 12y ago
  I don't understand the Emperor and 'beloved leader' references in your post?
  - widdershins 12y ago
    I suppose it's just a reference to the absurd deference which leaves him as CEO with no replacement when he's in a coma. And the fact that his position will be inherited by his son, no questions asked.
    - gpvos 12y ago
      Apparently there are some similarities between North Korean and South Korean culture (which is not very strange, since the border between them is an accident of recent history).
  - AznHisoka 12y ago
    Coma? Brain Dead? Why don't you stick with the facts? http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=2995528 http://koreajoongangdaily.joins.com/news/article/Article.asp...
  - yongjik 12y ago
    Well, OK, "beloved leader" might be hyperbolic, but portraying Samsung's management style as "Emperor Management" is hardly new. Googling for "이건희 황제 경영" (Lee Kun-hee Emperor Management) gives >1M hits. Think of it like Steve Jobs-style super-asshole management, and then imagine that Jobs does everything (legal or illegal) to cook the books so that his son (with questionable track record) can inherit the company without paying tax. And imagine reporters who raise the issue in "respectable" news organizations get fired. (One of the leading news organization is led by his brother-in-law.) * From the latest development, it seems he's not quite brain-dead yet. Sorry about spreading misinformation.
higherpurpose 12y ago
Samsung has rested on its laurels for too long and has ignored important criticism of its products. So I'm not even sad about it. They also own too much of the Android market, and there should be more equilibrium, or at least have someone else dominate the market for a few years.
Shofo 12y ago
There have been parallels appearing now for some time, showing Samsung alongside Nokia's doomed path. Samsung have neglected their software development just as Nokia had (in terms of interface not being iterated and updated). On top of that, hardware has not seen dramatic improvements. The public and loyal journalists have been becoming increasingly disgruntled (since the S4). If they don't innovate dramatically with the S6 there is trouble on the horizon for this behemoth. Samsung also need to position their experimental products (the new edge and the old round) as their lead products and fully get behind them. I always get the feeling they are hesitant like a person testing the water by dipping their toe in, when they just need to take a dive. The development is done and its in production so why not take a leap. If it fails at least they will be known as a company with innovation at its forefront and they can regress to their current practice.
Htsthbjig 12y ago
I believe we are confusing lots of things here. Profit isn't everything. Samsumg electronics is investing in semiconductors and also in OLED screens production. I see OLED as the future and just Samsumg and LG investing on them. OLED are very expensive today because there is no mass production of them, and because they are so expensive nobody buys them on TVs as they have hi def LCDs way cheaper. It is catch 22. I for one am waiting for OLED TV prices to be reasonable to buy 4 of them. Samsumg has a very good position as he is using the phones and tablets market to start mass producing OLED panels. When people change to OLED, and they will(because it is amazing tech), Samsumg will have a big advantage.
- jackweirdy 12y ago
  Samsumg? How did you consistently spell that wrong?
- headShrinker 12y ago
  I disagree. Customers will buy OLED simply because the price is right in comparison to other options. Consumers don't want 2k, 4k, OLED, bend-y screens or anything else, which is why OLED is not emerging. Distributers want 2k and 4k so they can sell licenses to previous license owners. (Maybe mobile device manufacturing wants OLED for battery efficiency but it's not a huge power savings anyway.) There are also a number of technical hurdles that become pronounced on OLED screens as big as 50". Polls indicate consumers are quite happy with the current LED LCD HD at the associated price point. A perfect example is the average consumer doesn't even know what OLED is or what benefits it offers. The fact that you do, means you are not average, and are not considered as the majority buyer group. In fact, the benefits OLED offers, the customer already thinks they have, because screen manufacturing sales lingo is so completely f-ed up. The current top of the line HD LED tv is not backlit. Its edge lit. I did extensive research only to find out actual backlighting, what they call "active matrix backlighting" is only on LED TVs starting around $7k to $15k. All this is an example of 'here is the newest best technology that you need to have'. The bad news is, the customer just spent 2k on a big ass TV 3 years ago and they aren't going to by a new one for at least 3 to 5 more years... OLED is going to take it's sweet time getting here, 3 to 5 years. Meanwhile 2k and 4k is going to arrive in the next year or so because of pressure from distributers.
hzshen 12y ago
Some high-tech industry sectors are actually labor intensive, such as the mobile OS. I only see 3 mobile OS with real potential now: iOS, Google Android, and MIUI (actually adapted from Android). Samsung is doomed because they don't have the whole ecosystem. Their lead on only the hardware part is not sustainable forever. Sooner is better than later, see whether they can fix it...
- souldoubt 12y ago
  Curious to see how Amazon's fork fares.
zarkov99 12y ago
good. hard to find a more corrupt and unethical company.
srcmap 12y ago
Cell phone seems to always be high revenue, high margin business but ONLY for a few years for any one company. Whoever won the top slot in cell phone biz can get tremendous revenues and profit boost - Motorola, Blackberry, Nokia, HTC, now Samsung. Apple might last a bit longer because of app/iOS infrastructure - but it will be tough to compete with Android.

95 points by davidbarker 12y ago

It's a side note in this article, but those unfamiliar with Xiaomi should do some light reading on the topic. It's a controversial company that publicly aspires to be the "Apple of China," and is often accused of simply ripping off Apple designs. My hunch is that we'll hear a lot more about Xiaomi in the American press in the next few years, even if in passing, and just as a curiosity. Xiaomi is not the only reason Samsung's been hurting. But its dirt-cheap pricing strategies have taken a serious bite out of Samsung's position in the crucial Chinese market.

Brajeshwar 12y ago
And Xiaomi is targeting the humongous Indian Market like crazy. I was once at an off-beat pre-launch for one of their new product (I hid my iPhone at all times) and they're super focused on getting the locals to get to Xiaomi phones. They are pretty successful successful in India and they are Indianizing their offerings for the Indians.
- aaronbrethorst 12y ago
  Indianizing their offerings for the Indians. what does this entail?
  - Mikeb85 12y ago
    Localized apps mostly. Many countries have their own social networks, search engines, ecommerce sites, etc...
ww520 12y ago
Xiaomi just overtook Samsung's market share in China. It sells cheaper priced phones with similar specs. Samsung's margin was hurt because of that. Xiaomi is expanding internationally. Samsung's margin will be further eroded. It's like the war of the clones back in the PC days, where Compaq the clone leader was cobbled by other better priced clones when all the clones had essentially the same feature.
- bhouston 12y ago
  My prediction: Xiaomi is only two years away from a serious entrance into the North American or European market and that entrance will be very disruptive for the existing market players, just like it has been in other markets that Xiaomi has entered.
  - seanmcdirmid 12y ago
    Xiaomi can't really enter western markets until its designs are more original, otherwise they would be sued out of existence. It will be interesting to see if and how they manage that transition. Also, Xiaomi is not a very good value. Meizi provides better quality for a similar price if you are into the low end.
    - NicoJuicy 12y ago
      Xiaomi releases models in Europe...
josephlord 12y ago
It is the cycle of things. European industrial dominance was undercut by low quality American knock offs that then went further up the market. Japan undercut the American market with low cost and quality products and then looked like they were going to dominate the world. Korea undercut Japan with low quality products and then went upmarket. Now China is about to... The key markets have changed since the industrial revolution but last century or so it can most clearly be seen in cars and electronics.

krschultz 12y ago

I'm a full time Android developer. I have to wonder, what % of the slip is Android overall and what % is Samsung specifically. I have to say I'm not pleased with the quality of the latest Samsung devices. Motorola, LG, and HTC all seem to be making higher quality phones.

MBCook 12y ago
But at this point the other Android manufactures (at least that have a good presence in the US) aren't making any money off Android phones, only Samsung was. If Samsung's profits are falling as an Android manufacturer where does that leave users? It's not like Samsung was selling below cost. Without them the others would have a higher market share but would they actually become profitable? Or is there just a glut of Android devices on the market to the point that no one would have an easy time making a profit in the current environment? Is this just a sign of a shake-up?
- ancientworldnow 12y ago
  On your not making any money comment, HTC has been profitable the past two quarters (https://gigaom.com/2014/10/03/by-managing-costs-htc-sees-another-profitable-quarter/ https://gigaom.com/2014/10/03/by-managing-costs-htc-sees-ano...) and LG has also been profitable in part due to their mobile division (http://www.lgnewsroom.com/newsroom/contents/64590 http://www.lgnewsroom.com/newsroom/contents/64590). Motorola seems to be heading towards profitability as well. Perhaps Samsung's decline has been in part to the success of these other handset manufacturers?
  - MBCook 12y ago
    That's good to know since Samsung used to be eating everyone's lunch and it was becoming a two horse race. As an outsider to this whole thing (Apple guy with little interest in buying an Android phone at this time) it has always seemed like there was a pretty big oversupply unless you only considered the flagship phones (and even then it's still arguable). The market share between the various Android manufacturers starting to even out sounds good to me, but I wonder what it would do for prices and how that would effect Android vs. iOS.

r00fus 12y ago

Something to note in this article - this is Samsung Electronics - combined mobile, TV and various other electronics manufacturer. I wonder how bad the mobile division is doing if the entire electronics company is forecasting a 60% profitability drop?

yongjik 12y ago

One tidbit not mentioned is that Samsung's Emperor Lee Kun-hee is in a coma (most likely brain-dead) for several months, and his son is not officially the Emperor... I'm sorry, I mean the CEO of Samsung group yet, because Lee the father is not officially dead. So, many mid- to high-level managers in Samsung could be postponing highly visible projects until the new leader steps in and clears up which way the company will be heading. (I once heard, from someone in a different Korean company, that there are implicit agreements to not be "too good" on the book in such a situation: if your company does just as well when the beloved leader is on bed / in prison / whatever, then the leader might not be the reason for the company's success. Can't have that.)

zo1 12y ago
I don't understand the Emperor and 'beloved leader' references in your post?
- widdershins 12y ago
  I suppose it's just a reference to the absurd deference which leaves him as CEO with no replacement when he's in a coma. And the fact that his position will be inherited by his son, no questions asked.
  - gpvos 12y ago
    Apparently there are some similarities between North Korean and South Korean culture (which is not very strange, since the border between them is an accident of recent history).
- AznHisoka 12y ago
  Coma? Brain Dead? Why don't you stick with the facts? http://koreajoongangdaily.joins.com/news/article/Article.aspx?aid=2995528 http://koreajoongangdaily.joins.com/news/article/Article.asp...
- yongjik 12y ago
  Well, OK, "beloved leader" might be hyperbolic, but portraying Samsung's management style as "Emperor Management" is hardly new. Googling for "이건희 황제 경영" (Lee Kun-hee Emperor Management) gives >1M hits. Think of it like Steve Jobs-style super-asshole management, and then imagine that Jobs does everything (legal or illegal) to cook the books so that his son (with questionable track record) can inherit the company without paying tax. And imagine reporters who raise the issue in "respectable" news organizations get fired. (One of the leading news organization is led by his brother-in-law.) * From the latest development, it seems he's not quite brain-dead yet. Sorry about spreading misinformation.

higherpurpose 12y ago

Samsung has rested on its laurels for too long and has ignored important criticism of its products. So I'm not even sad about it. They also own too much of the Android market, and there should be more equilibrium, or at least have someone else dominate the market for a few years.

Shofo 12y ago

There have been parallels appearing now for some time, showing Samsung alongside Nokia's doomed path. Samsung have neglected their software development just as Nokia had (in terms of interface not being iterated and updated). On top of that, hardware has not seen dramatic improvements. The public and loyal journalists have been becoming increasingly disgruntled (since the S4). If they don't innovate dramatically with the S6 there is trouble on the horizon for this behemoth. Samsung also need to position their experimental products (the new edge and the old round) as their lead products and fully get behind them. I always get the feeling they are hesitant like a person testing the water by dipping their toe in, when they just need to take a dive. The development is done and its in production so why not take a leap. If it fails at least they will be known as a company with innovation at its forefront and they can regress to their current practice.

Htsthbjig 12y ago

I believe we are confusing lots of things here. Profit isn't everything. Samsumg electronics is investing in semiconductors and also in OLED screens production. I see OLED as the future and just Samsumg and LG investing on them. OLED are very expensive today because there is no mass production of them, and because they are so expensive nobody buys them on TVs as they have hi def LCDs way cheaper. It is catch 22. I for one am waiting for OLED TV prices to be reasonable to buy 4 of them. Samsumg has a very good position as he is using the phones and tablets market to start mass producing OLED panels. When people change to OLED, and they will(because it is amazing tech), Samsumg will have a big advantage.

jackweirdy 12y ago
Samsumg? How did you consistently spell that wrong?
headShrinker 12y ago
I disagree. Customers will buy OLED simply because the price is right in comparison to other options. Consumers don't want 2k, 4k, OLED, bend-y screens or anything else, which is why OLED is not emerging. Distributers want 2k and 4k so they can sell licenses to previous license owners. (Maybe mobile device manufacturing wants OLED for battery efficiency but it's not a huge power savings anyway.) There are also a number of technical hurdles that become pronounced on OLED screens as big as 50". Polls indicate consumers are quite happy with the current LED LCD HD at the associated price point. A perfect example is the average consumer doesn't even know what OLED is or what benefits it offers. The fact that you do, means you are not average, and are not considered as the majority buyer group. In fact, the benefits OLED offers, the customer already thinks they have, because screen manufacturing sales lingo is so completely f-ed up. The current top of the line HD LED tv is not backlit. Its edge lit. I did extensive research only to find out actual backlighting, what they call "active matrix backlighting" is only on LED TVs starting around $7k to $15k. All this is an example of 'here is the newest best technology that you need to have'. The bad news is, the customer just spent 2k on a big ass TV 3 years ago and they aren't going to by a new one for at least 3 to 5 more years... OLED is going to take it's sweet time getting here, 3 to 5 years. Meanwhile 2k and 4k is going to arrive in the next year or so because of pressure from distributers.

hzshen 12y ago

Some high-tech industry sectors are actually labor intensive, such as the mobile OS. I only see 3 mobile OS with real potential now: iOS, Google Android, and MIUI (actually adapted from Android). Samsung is doomed because they don't have the whole ecosystem. Their lead on only the hardware part is not sustainable forever. Sooner is better than later, see whether they can fix it...

souldoubt 12y ago
Curious to see how Amazon's fork fares.

zarkov99 12y ago

good. hard to find a more corrupt and unethical company.

srcmap 12y ago

Cell phone seems to always be high revenue, high margin business but ONLY for a few years for any one company. Whoever won the top slot in cell phone biz can get tremendous revenues and profit boost - Motorola, Blackberry, Nokia, HTC, now Samsung. Apple might last a bit longer because of app/iOS infrastructure - but it will be tough to compete with Android.