By AARON BACK
Samsung Electronics has gone from smartphone model to basket case. There could be worse to come.
Samsung said Tuesday its third-quarter operating profit likely fell 58% to 62% from a year earlier, which was even worse than already low analyst expectations. It was the fourth quarter in a row of declining operating profit. A detailed breakdown won’t be available until Samsung releases full results, but the problem is clearly in the mobile division. Samsung said total smartphone shipments “increased marginally” in the period, but margins declined due to lower selling prices and higher marketing expenses.
Samsung’s smartphone business is facing intense competitive pressure at the low-end from Chinese handset makers, and at the high-end from the iPhone. With the iPhone 6, Apple essentially wiped out Samsung’s distinguishing feature: a big screen size. And with the jumbo iPhone 6 Plus, Apple has now entered into the “phablet” segment that Samsung pioneered.
The third quarter included just 12 days of iPhone 6 sales. Expect the impact on Samsung in the fourth quarter to be much bigger. Nomura analyst C.W. Chung says Samsung’s past few years of strong profitability in mobile devices were an anomaly, driven by Apple’s premium pricing, which supported margins across the sector.
But without essential differentiators like Apple’s, such as design cachet and a software ecosystem, Samsung is headed toward becoming a maker of commoditized hardware. Mr. Chung sees operating margins for handsets and tablets declining to 11% in 2016 from 21% in 2013.
A bright spot for Samsung is its components business, including memory and logic chips as well as displays. Analysts expect components to account for more than 40% of operating profits next year, compared with around 30% this year. Samsung underscored its focus on this area on Monday, when it announced plans to invest $14.7 billion building a new chip plant in South Korea.
Samsung?s smartphone business is facing intense competition at the low-end from Chinese handset makers, and at the high-end from Apple's iPhone.
Components are less sexy than smartphones, but they can still make money, especially when you are the technology and scale leader, as Samsung is in memory chips, says Mark Newman of Bernstein Research. But Samsung’s smartphone problems could blow back on the component business as well. The company’s smartphones are the biggest customers for its application processor chips and cutting-edge organic light emitting diode displays.
Components are less sexy than smartphones, but they can still make money, especially when you are the technology and scale leader, as Samsung is in memory chips, says Mark Newman of Bernstein Research. But Samsung’s smartphone problems could blow back on the component business as well. The company’s smartphones are the biggest customers for its application processor chips and cutting-edge organic light emitting diode displays.
Ultimately, focusing more on components will only intensify the trend toward becoming a commoditized hardware maker. For that, investors have plenty of other choices.
No comments:
Post a Comment