Customers hang up on Samsung

The smartphone giant has reported its first quarterly profit fall in two years as phone sales decline.

by Rachel Savage
Last Updated: 07 Oct 2014

Consumer electronics giant Samsung suffered its first quarterly profit decline in two years, as smartphone sales fell and earnings were hit by a one-off bonus payment and currency swings.

Operating profit fell 18% to 8.3tn won (£4.6bn) in the three months to December compared to the previous quarter, and was down 6% year-on-year, in line with the company’s surprise profit warning issued two weeks ago.

Samsung doled out a huge golden thank you to its employees during the quarter, paying them 800bn won to commemorate 20 years since chairman Lee Kun Hee went on a 1993 world tour to find out how Samsung was doing worldwide and wasn’t best pleased with what he saw.

Lee gave a three-day speech to executives in a Frankfurt hotel (with breaks to sleep), exhorting them to ‘change everything but your wife and children,’ and sparking the company’s ascent to electronics big-daddy. The speech, known as the Frankfurt Declaration, was turned into a 200 page book for employees, with a cartoon version for the illiterate. Stirring stuff, but then Lee did also burn 150,000 faulty phones on a bonfire and bulldoze the ashes in front of 2,000 staff in 1995.

Profits took a 700bn won knock from the stronger Korean currency. Samsung also warned the first quarter of 2014 won’t be particularly great either, saying it would be ‘challenging’ to raise earnings given ‘the weak seasonality of the IT industry’.

Arch-rival Apple hasn’t had a great time recently either, reporting a fall in annual profits back in October. However, bumper iPhone sales, including the newly-launched 5S and 5C, look to have stolen a march on Samsung. Mobile sales were down 9% compared to the previous quarter, pushing operating profit down 18% from a record 6.7tn won (although it was unchanged from the previous year).

The company, which has 32% of the global smartphone market compared with Apple’s 12%, said it expected competition to ‘intensify’ (no kidding…) as more people ditch their bricks for smartphones. With Apple having sewn up a deal to sell iPhones to China Mobile’s 760 million customers, and Microsoft-owned Nokia and Taiwanese firm HTC launching phones at the end of last year, Samsung’s continued supremacy is far from assured.

However, Samsung has an 18.5% share of China’s huge mobile market, and Lenovo, Coolpad, ZTE and Huawei are also popular. The iPhone is just one of 20 new 4G phones China Mobile is launching in the first half of this year, according to Citi analysts, most being sold for far less than the pricey iPhone. Samsung won’t be running scared just yet.

The world’s largest maker of mobiles and TVs will also take some heart from its full-year results, with sales up 14% and operating profit soaring 37% compared to 2012. This year, however, may not be quite so massive.

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