Friday 01 / November / 2024
Seoul: Samsung’s profit miss is the latest sign the global smartphone market is running out of steam, spelling trouble for the suppliers of displays, semiconductors and other components that go into mobile devices.
The world’s largest maker of displays and memory chips, which sells to Apple and many other brands, posted fourth-quarter profit that fell short of analysts’ estimates as sales remained sluggish over the holiday season. Demand is waning for smartphones as markets mature and China’s economy slows, pressuring profit margins at Samsung.
Concerns that the smartphone market is fizzling out has spurred analysts to trim estimated demand, which in turn has hammered device vendors as well as suppliers of components and contract assemblers. Apple, which garners most of the industry’s profits, ended on Thursday below $100 for the first time in over a year after investment brokerages from UBS to Morgan Stanley lowered forecasts on iPhone shipments.
“I see no signs of a recovery in demand for electronics products which only means the component businesses will remain pressured,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co. “The situation is only getting worse and the first-quarter earnings will likely be even lower than the fourth quarter.”
Stagnant sales
Samsung’s operating income was 6.1 trillion won ($5 billion) in the three months ended December, the Suwon, South Korea-based company said in preliminary results released on Friday. That compares with the 6.64 trillion-won average of analysts’ estimates.
Sales were 53 trillion won in the quarter, little changed from a year earlier, the company said. Samsung won’t provide net income or break out the results of various divisions until it releases audited results later this month.
The result comes just days after Co-chief executive officer Kwon Oh Hyun warned of escalating competition and urged employees to find ways to safeguard its lead now that software and platforms are eclipsing hardware.
Declining shipments
Samsung phone shipments are headed for their second straight annual decline in the wake of tougher competition from Apple in the high-end segment to China’s Xiaomi and Huawei for budget consumers. Yet even Xiaomi, which rose from obscurity to become the country’s biggest phone brand, may have missed its 80-million unit sales target in 2015, people with knowledge of its production plans have said.
Largan Precision, which gets more than a quarter of its sales from Apple, this week said sales in December dropped 31 per cent from a year earlier. Catcher Technology expects little growth in the first half on weaker demand from Apple, Nikkei reported.
While Samsung has been able to boost chip sales volumes, the price of memory is falling. Operating income at the semiconductor business, the company’s biggest profit generator, probably rose about 20 per cent to 3.3 trillion won in the fourth quarter on sales of 12.7 trillion won, according to the median estimate of six analysts surveyed.
Samsung has shifted focus toward chips and displays and sought more external clients to help make up for declining growth in its own phones and TVs. The company is spending 15.6 trillion won on a new plant in South Korea with semiconductor production forecast to start next year.
Operating profit at the mobile unit was probably 2.18 trillion won in the quarter, according to the analyst survey, largely helped by growth in shipments of cheaper Galaxy smartphones such as the A and J series.
Longer term, the company has signaled a potential shift in its strategic thrust. Vice-chairman Lee Jae Yong, heir apparent to South Korea’s biggest conglomerate, last month replaced the head of its mobile business as part of an annual management overhaul, signaling a change in direction to focus on software innovations. New phone head Koh Dong Jin worked on Samsung’s new payments service and its Knox security software.
“Quite apart from Samsung Galaxy models, today’s results also suggest that the market can no longer rely on die-hard demand for iPhones in the high-end category as well,” Kim said. “That surely pressured key component suppliers, including Samsung. The more consumers choose to buy cheaper phones, the more price pressure on components powering those devices.”
