Credit: Samsung

Samsung's profit jump won't stop longer-term jitters about smartphone sales

The electronics giant's surprisingly large earnings are a relief, but it still faces stiff competition from more nimble competitors.

by Rebecca Smith
Last Updated: 07 Apr 2016

Was Samsung worrying over nothing? After warning the world in January it was going to struggle to maintain profits this year following a drop off in sales of its smartphones in 2015 and fierce competition from the likes of Huawei and Xiaomi, it has just released a forecast saying its results will surpass analysts’ expectations.

The South Korean company said its operating profit from January to March is predicted to reach 6.6 trillion Korean won (£3.9bn) – up 10.4% from the same period a year earlier. Sales are also expected to rise 4% to 49tn.

So is it learning how to fight off the encroachment of its lower-cost Chinese rivals, which have been hoovering up market share? Last year, Huawei climbed up to become the world's third-largest mobile phone maker, stepping over Microsoft to do so and is now also looking to squeeze Samsung further, by branching out into higher-end phones. 

The launch of Samsung's latest flagship S7 smartphone didn't set the market alight – failing to impress in terms of innovation, with the prevailing view that there was little different about it compared to the S6. But it's delivered a surprisingly strong performance, suggesting consumers didn't necessarily agree. The solid profits aren't simply a sign that Samsung is fending off its competitors - lower marketing spending for the mobile business also helped bolster the bottom line. 

It’s still the world’s largest mobile phone maker, but it can be tricky being the market leader. While challengers might not enjoy the benefits of its size, when they do eat into market share, more often than not it’s going to be Samsung’s.

While MT doesn't want to rain on its parade, it’s worth pointing out there's no guarantee the S7 will continue to defy expectations in the longer-term. Especially when the wider smartphone market has been more competitive and sales have slowed – they’re expected to rise by just a single digit percentage for the first time in 2016, according to Gartner. Samsung also actually brought forward the release of the S7, which will have brought sales forward - not a trick it can repeat every quarter.  

Not to mention there is of course the little matter of its other heavyweight competitor Apple and its forthcoming new iPhone, which’ll be arriving later this year and could well steal Samsung's thunder. And Huawei’s latest push into higher-cost phones, the P9, will be be launched next week.

Samsung, for its part, won't be phoning it in, knowing it's in for a bumpy ride in 2016. Apparently it's going to try and shape the company more into a  nimble start-up to help boost innovation. Its plans to do that seem a bit vague, but  cutting away some internal bureaucracy would at least be a step in the right direction. 

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