Thursday, October 30, 2014

Samsung profit falls to more than 3-year lows


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Samsung's third quarter earnings report revealed a worsening situation, with earnings at its mobile division collapsing amid cut-throat competition in the smartphone market.
Operating profit fell 60.1 percent on year to 4.1 trillion won ($3.90 billion), in line with guidance it issued earlier this month and marking the weakest outturn since the second quarter of 2011.
Profit for the mobile division slumped to 1.75 trillion won from 6.70 trillion won a year ago, its worst performance since the second quarter of 2011.
"This is really bad. They are getting challenged on both ends of the price spectrum," Bob O'Donnell, founder and chief analyst, Technalysis Research told CNBC.
"Samsung was first out of the gate, with innovations such as bigger screens and other capabilities but the problem is everyone has caught up and there's not a lot more you're going to see in the form factor of smartphones," he said.
The mobile division now accounts for just 43 percent of operating profit, down from 76 percent in the first quarter.
Despite the disappointing report card, Samsung's shares rose almost 4 percent on Thursday.
'Uncertain' outlook
While Samsung sees improved earnings for its TV and components business in the fourth quarter, it said the outlook for its handset business remains "uncertain."
Outlining mobile business strategy following the earnings release, the company said it's looking to capitalize on rapid growth in the mid-to-low smartphone segment and plans new product launches this quarter. It also aims to maintain a stable double-digit profit margin for its handset business.
These comments failed to comfort analysts, however.
"I'm not sure there's much confidence on what they say on earnings calls regarding the outlook because they have been wrong for several consecutive quarters," said Mehdi Hosseini, senior analyst at Susquehanna Financial Group.
Samsung needs to do a better job at communicating its smartphones strategy, he added.
"They aren't providing much detail on how Samsung's phones are going to be differentiated into next year," Hosseini said. "We have been expecting for the past year that they would commercialize flexible display technology but I'm not hearing any tangible updates on that."
Samsung's share of the global smartphone market declined to 23.8 percent in the third quarter, from 32.5 percent in the same period a year earlier, according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker.
It was the only company among the top five – made up of Apple, Xiaomi,Lenovo and LG - to see its shipment volume decline year over year in the third quarter, IDC said.
"With continued competitive pressure from nearly every side coupled with cooling demand for its high-end devices, the company's volumes have fallen from their previous highs at the start of the year," IDC said. "Although Samsung has long relied on its high-end devices, its mid-range and low-end models drove volume for the quarter and subsequently drove down ASPs."

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