Bad Times for Samsung May Not End Soon

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It has not been a good week for Samsung. The company released pre-earnings guidance for its third quarter that projected a 60 percent drop in profits. This falls, according to WirelessWeek, “well short” of analysts’ expectations for Samsung and is a 60 percent drop on a year-over-year basis.

The company cited a small rise in shipments but lower margins, competition, marketing expenses, smaller shipments of top-shelf units and lower prices for older devices.

Those are the types of reasons given when a company has a bad quarter. The news is noteworthy simply because Samsung is an important company and its results have a big impact on the health of the sector overall. Beyond that, the slump illustrates how fluid the sector is. And make no mistake, it indeed is a slump: Andreesen Horowitz’s Benedict Evans notes, via The Washington Post, that this is the fourth straight down quarter for Samsung.

The sense of gloom for Samsung is exacerbated by the fact that the bad news is coming from more than one direction. The Economist certainly doesn’t think Samsung’s problem is momentary:

The firm’s smartphone sales are being crushed from multiple directions. From below, low-cost makers from China, such as Xiaomi, and new European brands, such as Wiko, are attacking Samsung’s market, attracting away price-conscious customers. And from above, Apple is set to lure back wealthier shoppers with its new iPhone models. Moreover, as the smartphone market starts to reach its saturation point, the industry’s growth as a whole is slowing.

The Guardian’s Charles Arthur suggests that Samsung has structured itself into a corner. Its disappointing smartphone sales are likely to create a chain of negative results. Co-dependency of products seems to be a difficult thing to avoid. Such a strategy also is a gamble that pays off richly when times are good. Times, now, are anything but for Samsung, and it is paying the price. Writes Arthur:

It is the first time Samsung’s smartphone shipments have dropped year-on-year, which carries warning signs for its future. Its profit also relies on a multiplier effect: its phones use its displays and chips, so when handset sales are booming, more displays and chips are made, improving scale and lowering price, and helping to win outside business. When phone sales slow, the multiplier fades away, as do profits.

It will be fascinating to see what Samsung does going forward. If the company’s fate is as tied to its hardware sales as Arthur suggests, Samsung’s problems are significant and will be long term.

Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at cweinsch@optonline.net and via twitter at @DailyMusicBrk.