By Daniel Hunter
Samsung Electronics has forecast a 60% drop in its quarterly profits as a result of drastically slowing smartphone sales.
The Korean electronics giant has predicted profits of 4.1tn won ($3.8bn; £2.5bn) for the three months to September. It compares to the 5.2tn won forecast by market analysts. Samsung is due to publish its financial results later this month.
The world’s largest TV and mobile phone manufacturer has dominated the smartphone market in recent years. But it is rapidly losing its market share to a combination of Apple and cheaper handsets. Apple, and Chinese manufacturers Xiaomi and Lenovo are causing big problems for the Korean firm.
Samsung’s flagship series of Galaxy smartphones has been losing market share to cheaper models with large screens and multiple features.
In a statement, Samsung said: “Smartphone shipments increased marginally amid intense competition.
“However, the operating margin declined due to increased marketing expenditure and lowered average selling price.
“[we are] preparing new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid-to-low end smartphones.”
Samsung said quarterly sales are likely to 47.3tn won, down from expectations of 50.3tn won.
Dr Aleksi Aaltonen, Assistant Professor of Information Systems at Warwick Business School, said: ““Samsung is being squeezed at the top of the smartphone market by Apple that is fully focused on providing high-end mobiles, while at the bottom Chinese manufacturers such as Huawei and Xiaomi are driving the margins down. A large part of the growth in smartphones comes in countries where these manufactures are strong. The change in the market dynamics has been coming for a few years. Why has Smasung not been able to adapt?
“It is important to understand that smartphones have matured as a technology remarkably quickly. A few years ago, it was an engineering marvel to put together a fairly usable smartphone whereas today it is common practice. Most consumers don’t really need more megapixels and gimmicky features. The screen size has reached its usable limits. Therefore, it will require more marketing to convince people to buy a new smartphone apart from replacing a broken one. This means that the competitive advantage from being able to manufacture relatively affordable, yet very capable smartphones, is vanishing.”
Despite the huge reduction in profit forecast, Samsung’s shares were up 1.6% in early trading on Tuesday morning.
On Monday, the Korean firm announced plans for a $15bn semiconductor plant in the country. It will be used to keep up with the huge demand for memory chips.
It is understood to be the single largest investment in a chip factory ever made. Samsung supplies chips to other electronics manufacturers, including its big rival, Apple.
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