According to the news report by Bloomberg, weak phone sales left the smart phone maker Samsung Electronics Co. not meeting its second quarter targets.
According to preliminary results that were released this Friday, operating income for the Galaxy smart phone maker went up to 14.8 trillion won (~$13.2 billion) for the second quarter of the year. However, the market estimate for the company had been pegged at 15.3 trillion won (~$14 billion).
Sales numbers were at 58 trillion won (~$52 billion), vis-à-vis the market expectation of 60.8 trillion (~$55 billion). The company, however, declined to reveal any further numbers such as net income, divisional performance etc. until the formal results are released later this month.
Samsung’s shares fell by as much as 2.3% in trading, which is the lowest the share price of the electronics giant has dropped in the last 5 months. So far this year, the company’s stocks are down by 12% after it traded at almost record highs last year.
For the last 10 years or so, there has been a booming market for smart phones. However, in the last couple of years, that demand has started to slow down. So far, the company has been able to sail over the slowing demand for smartphones which has impacted most manufacturers across the world. The company has been able to do so, thanks to the demand for extra memory in phones, which Samsung has consistently provided, thereby delivering sales results that have also consistently exceeded projections.
Now, however, it looks like market forces are catching up with the giant smartphone maker. The weak sales of its newest offering, the Samsung Galaxy S9 devices which were launched in the first quarter of the year are beginning to tell on the company’s quarterly performance. This is despite the fact that Samsung still dominates the DRAM (dynamic random-access memory) and NAND (NOT AND) chip markets.
According to fund manager at Korea Investment Management, Jung Sang-Jin, while smart phone sales are falling, chips sales are on the rise. The sales from each of these segments may cancel each other out in terms of profit, but Samsung might be able to see some recovery in the second half of the year thanks to the weakening won against the US dollar.
Samsung had, however warned its shareholders that its smartphone/mobile business would experience stagnation in its flagship mobile phone devices due to a slowing down in demand as well as increased marketing expenditure.
The company’s market share is expected to fall some more to 20.4%, down from 21.4% in the previous quarter. According to TrendForce, this is because of the upcoming Chinese companies such as Huawei Technologies Co., Xiaomi Corp. and Oppo, all of which have been increasing their market share and have been eating into Samsung’s slice of the pie.
These – and other – Chinese companies have also been eating into Samsung’s market share in the LCD TV market, of which Samsung is the leader. To make things worse, the South Korean giant is also facing an investigation in China for an alleged collusion with Micron Technology Inc. and SK Hynix Inc. over chip sales. The company is also facing issues at home with regard to corporate governance.
Currently, the microchip business is the largest contributor to Samsung’s profits. And, according to Jung, the trade war between the US and China may turn out to be beneficial for the Korean chip maker. Samsung can offer China an alternative to American chips, while the US may have to look to Samsung to source smart phone displays if the tariff war continues.