Samsung plans smartphone overhaul after profits plunge

30/10/2014
South Korean firm may reduce phone portfolio amid lukewarm sales of Galaxy S5 and stiff competition from India and China..
Samsung Electronics has vowed to overhaul its mobile phone handset lineup after profit from smartphones tumbled last quarter to the lowest in more than three years.
The South Korean firm, which climbed from smartphone laggard to top seller in the past three years, had prided itself on responding quickly to market demand and tailoring handsets to the needs of users and mobile carriers around the world.
But its rapid success with a product category pioneered by rival Apple is undergoing an equally stunning reversal. Earnings from Samsung’s mobile phone business began declining this year, undermined by lukewarm sales of the Galaxy S5 smartphone and an onslaught from cheaper local brands in China and India. Apple also eroded Samsung’s leading market share in developed nations.

In a rare acknowledgement of a misstep, Samsung’s head of investor relations told an earnings conference call that the firm had lagged behind changing market conditions. The company’s response “was not quick enough”, said the executive, Robert Yi.
Samsung plans a significant change in smartphone strategy for next year to seek more “efficiency”, implying a reduction in the number of new handset models . That will allow the company to better focus on each product and to purchase components at cheaper prices to save costs.
Unlike Apple’s take-it-or-leave-it approach, Samsung boasted it gave more choice to consumers, launching at least two significant models a year and making smartphones in a variety of screen sizes and various features.
The drop in earnings from the mobile business battered the South Korean company’s quarterly net profit, which tumbled 49% to 4.2tn won (£2.5bn). That was the lowest since the first quarter of 2012, but above market expectations.
Operating income from its mobile business, which had contributed more than 60% of its entire earnings, fell to 1.75tn won from 6.7tn won a year earlier.
Quarterly sales fell 20% to 47.4tn won while operating income shrank 60% to 4.1tn won.
Samsung warned this month that its handset profit had declined despite a marginal increase in shipments. Analysts said the Galaxy S5 smartphone launched in April did not sell well while many consumers held off upgrading their phones, waiting instead for new iPhones.
“High-end smartphone sales result was somewhat weak,” said Kim Hyun-joon, senior vice-president at Samsung’s mobile communications business. “We will fundamentally reform our product portfolio.”
Samsung retained its leading position in the global smartphone market during the third quarter, but it was the only top five handset vendor to record a sales decline. Apple, Xiaomi, Lenovo and LG Electronics all experienced more than 15% growth.
Samsung’s shipments fell 8% to 78.1m smartphones in the third quarter and its market share eroded to 24% from 33% a year earlier.
Samsung’s rise to the world’s top smartphone maker was largely thanks to its early bet on Google’s Android operating system. But with other Android handset makers catching up in performance, features and design, Samsung is facing pressure to add an impressive and differentiating new feature to its phones.
One of its answers was the Galaxy Note Edge smartphone with a curved side screen that can display icons, news flashes or weather. But with a limited supply of curved displays, Edge smartphone production will remain small. It went on sale in Japan and South Korea this month.
The company gave little detail about how it would differentiate new smartphones’ software or user experience. On the hardware front, Samsung said flexible displays and a metal case will help its phones stand out.
With a plunge in smartphone profit, Samsung is increasingly relying on semiconductors. For the first time since the third quarter of 2011, the semiconductor division reported a larger quarterly profit – 2.3tn won – than the mobile communication division.

Fonte:http://www.theguardian.com/business/2014/oct/30/samsung-smartphone-overhaul-profits-plunge

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