Samsung Electronics Co admitted erring in its smartphone strategy and vowed yesterday to overhaul its handset lineup after profit from those devices tumbled last quarter to the lowest in more than three years.
The South Korean company, which climbed from smartphone laggard to top seller in the past three years, had prided itself on responding quickly to market demand and ability to tailor handsets to the needs of users and mobile carriers around the world.
However, its rapid success with a product category pioneered by rival Apple Inc is undergoing an equally stunning reversal. Earnings from Samsung’s mobile phone business began declining this year, undermined by lukewarm sales of the Galaxy S5 smartphone and the competitive onslaught from cheaper local brands in China and India. Apple also eroded Samsung’s leading market share in developed nations.
Photo: AFP
In a rare acknowledgement of a misstep, Samsung head of investor relations Robert Yi told an earnings conference call that Samsung had lagged behind changing market conditions.
The company’s response “was not quick enough,” Yi said.
It plans a significant change in smartphone strategy for next year to seek more “efficiency,” implying that the number of new handset models might be reduced. That would allow the company to better focus on each product and to purchase components at cheaper prices to save costs.
Unlike Apple’s take it or leave it approach, Samsung boasted that it gave more choice to consumers, launching at least two flagship models per year and making smartphones in a variety of screen sizes and various features.
The drop in earnings from the mobile business battered the South Korea company’s quarterly net profit, which tumbled 49 percent to 4.2 trillion won (US$4 billion). That was the lowest since the first quarter of 2012, but above market expectations.
Analysts polled by FactSet had predicted net income of 3.7 trillion won.
Operating income from its mobile business, which previously had contributed more than 60 percent of its entire earnings, fell to 1.75 trillion won from 6.7 trillion won a year earlier.
Samsung’s quarterly sales fell 20 percent to 47.4 trillion won, while its operating income shrank 60 percent to 4.1 trillion won.
“High-end smartphone sales result was somewhat weak,” said Kim Hyun-joon, senior vice president at Samsung’s mobile communications business. “We will fundamentally reform our product portfolio.”
Samsung retained its leading position in the global smartphone market during the third quarter, but it was the only top-five handset vendor to record a sales decline.
Apple, Xiaomi (小米), Lenovo (聯想) and LG Electronics all posted more than 15 percent growth in their smartphone shipments, according to market research firm IDC.
Samsung’s shipments fell 8 percent to 78.1 million smartphones in the third quarter and its market share eroded to 24 percent from 33 percent a year earlier.
With a plunge in smartphone profit, Samsung is increasingly relying on semiconductors.
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