Surging iPhone demand on the high-end and plummeting sales of its feature phones that are getting squeezed out of the market by Chinese upstarts like Xiaomi are largely blamed for yet another disappointing quarterly earnings that Samsung posted Thursday.
The South Korean conglomerate reported an eight percent annual decline as profits decreased to 5.75 trillion Korean won, or approximately $4.9 billion, from 6.3 trillion won a year earlier. Analysts predicted 5.6 trillion won of net income. The results mark a fifth straight drop in quarterly earnings for the consumer electronics giant.
The bad news gets worse as Samsung’s mobile division, its bread and butter, reported a huge 37.6 percent drop in mobile operating income which fell from 4.42 trillion won in 2014 to 2.76 trillion won during the April-June period.
Total sales for the quarter dropped seven percent on an annual basis, from 52.35 trillion won in the second quarter of 2014 down to 48.5 trillion won today.
Operating income dropped four percent to 6.9 trillion won. The mobile division’s operating profit margin came in at 10.6 percent, down sharply from 15.5 percent in the year-ago quarter. That’s because average selling price of Samsung handsets decreased as the company responded to competition in China by lowering prices of its feature phones and low-end smartphones.
The company has acknowledged that its Galaxy S6 and Galaxy S6 Edge devices have failed to reverse the profit decline, admitting on a conference call with investors that “Total sales of the S6 and S6 Edge during the second quarter were below expectations.”
The impact of the launch of the Galaxy S6 and Galaxy S6 Edge was “quite marginal due to low smartphone shipments and an increase in marketing expenses for new product launches,” the company conceded.
The management will continue to “innovate the hardware to lead the market in the premium segment” while continuing “to add services.” Samsung was mostly hurt by misjudging demand for Galaxy S6 Edge.
According to the Wall Street Journal and Bloomberg, the Galaxy S6 Edge has turned out much popular than Samsung has anticipated, with demand closer to one to one between the regular S6 and the S6 Edge, which costs more and has a curved screen.
“The only people buying a high-end Android phone want the top-of-the-line, and that means the Edge. Anyone who is concerned about price isn’t going to save $100 by buying a normal S6; they’re going to save $500 and get a perfectly serviceable phone that runs the exact same software,” observed blogger Ben Thompson in his Daily Update email blast earlier this month.
Samsung’s internal estimates assumed demand for the devices would be around four to one in favor of the regular S6, resulting in shortages of the S6 Edge and unsold stock of the regular S6.
Samsung does not divulge mobile unit sales for competitive reasons, but research firm Strategy Analytics estimated that Samsung’s worldwide share, which includes all handsets, fell from 22.3 to 20.5 percent in the June quarter as shipments declined from 95.3 million to 89 million units.
During the same period, iPhone sales grew 35 percent year-over-year to 47.5 million units thanks to the runaway success of the larger-screened iPhone 6, earning the California firm a 10.9 percent marketshare of mobile operating systems and pushing it to the second place.
“Apple outperformed as consumers in China and elsewhere upgraded to bigger-screen iPhone 6 and 6 Plus models,” said the research firm in its analysis.
Microsoft dropped to fourth place as total shipments decreased from 50.3 million in the year-ago quarter to 27.8 million, leaving it with just 6.4 percent of the market for mobile operating systems.
Microsoft earlier reported a $7.6 billion write-down for its handset business, plus restructuring charges between $750 million and $850 million. Its Lumia smartphone family is currently in the state of flux as the firm transitions to Windows 10, with new Lumias powered by Windows 10 not expected until later this year.
Huawei sold 30.6 million handset units, overtaking Microsoft to become the world’s third largest mobile phone vendor for the first time ever. Chinese upstart Xiaomi increased its share from 3.5 percent a year ago to 4.6 percent today, earning it fifth place, according to Strategy Analytics data.
The data also indicates that global handset shipments grew just two percent annually, the industry’s weakest performance for two years due to slowing demand for handsets in China, Europe and the United States. Smartphones accounted for eight in ten of total mobile phone shipments during the quarter.
IDC data corroborates most of Strategy Analytics’s findings, painting Samsung as the only top five smartphone vendor to have lost market share in the June quarter.
Feeling the heat, Samsung has reportedly decided to unveil the fifth-generation Galaxy Note phablet alongside an even larger version of the Galaxy S6 Edge at a media event on August 13 in New York City, three weeks in advance of its usual launch timeframe.
The invite for Samsung’s Unpacked 2015 event can be seen above.
What do you think, will the new Note 5 along with the next Galaxy smartphone stanch the bleeding and help Samsung turn things around?