Samsung's Profits Are Falling Fast

Samsung Electronics is the largest consumer electronics manufacturer in the world. As well as its highly successful Galaxy S series of smartphones, the company has also been innovating in recent years with its Note and Gear devices, seeing considerable success. But in the tech world, as with everything else, nothing lasts forever…

In a press statement yesterday, the company announced that its profits are down 60% off last year’s figures. In the last year the company made only $3.8 billion, a figure much lower than that expected by the company’s investors.

Samsung is primarily laying the blame on stronger than anticipated competition in the smartphone market. In a press statement they explain:

Samsung Electronics' 3Q earnings is expected to decrease substantially quarter-on-quarter as a result of declines in the mobile business due to intensified smartphone competition, which also had an adverse effect on the performance of the OLED and S.LSI businesses, and weak seasonal demand for the CE business, including TVs.

The company goes on to say that the actual number of smartphones which they have sold increased marginally, however the amount of profit which it makes off each device has decreased. This was due to increased competition, especially from other Asian competitors like Xiaomi and Oppo which forced Samsung to cut prices. Also Samsung attributed some of the drop in profits to higher marketing costs, as part of an aggressive publicity campaign.

Clearly, Samsung is far from financial ruin, but this latest earnings report should be setting alarm bells off within the company. As most of the company’s massive earnings gains in recent years have been due to high end smartphone sales, Samsung will need to reinvent its Galaxy S lineup in order to win back wavering consumers, as well as to justify a more premium price point. In addition, it should continue with its aggressive sales approach in the wearables sector, and keep producing products until it achieves a similar ‘hit’ product, like the original Galaxy S.