Samsung Earnings Drop, Possibly Due To Smartphone Miss
It seems that smartphone giant Samsung is experiencing a series of alarming decline in sales, and many believe it has something to do with a particular smartphone model and its variants.
This comes as Samsung Electronics releases its pre-earnings guidance for the second quarter of 2015. They had reported that they are expecting the company’s consolidated sales to be approximately 48 trillion Korean won (approximately $42.2 billion). Moreover, they expect the actual sales number to fall somewhere between 47 trillion Korean won and 49 trillion Korean won. Meanwhile, Samsung Electronics also believes that its second quarter 2015 consolidated operating profit will also be approximately 6.9 trillion Korean won (around $6 billion) while the range they are looking at is actually between 6.9 trillion Korean won and 7 trillion Korean won.
Compared to Samsung’s first quarter of 2015 earnings release, the projected numbers represent a slight increase since sales for the said first quarter was only 47.12 trillion Korean won while operating profit was at 5.98 trillion Korean won.
Moreover, first quarters sales were down 11% while operating profit was up slightly by 0.69%, quarter-on-quarter. In addition, profit for Samsung’s Device Solutions was up slightly by 0.25% quarter-on-quarter.
Samsung had attributed the said increase to a decrease in marketing expenses as well as the “expansion of new mid/low-end smartphones.” Meanwhile, the decline of revenue quarter-on-quarter was attributed to a decrease in shipments of tablets and feature-phones.
Still, when comparing the projected earnings with second quarter of 2014, Samsung’s performance has clearly declined. Samsung’s earnings release for the second quarter of 2014 revealed that its sales was at 52.35 trillion Korean won while its operating profit was at 7.19 trillion Korean won. When compared quarter-on-quarter, it shows that sales back then was down by 2% while the operating profit was down 15%.
Early on, Samsung’s outlook on its 2015 second quarter performance was somewhat bleak. They had said, “Expect smartphone and tablet demand to stagnate due to continued weak seasonality.”
Moreover, they had also stated, “Expect earnings improvement led by increased high-end sales with S6 global expansion, while smartphone shipments to remain at similar level due to decreased mid/low-end sales. Expect marketing expenses to increase due to S6 expansion.”
In addition, they would also like to “pursue smartphone shipments growth by enhancing product competitiveness” for the rest of 2015.
While Samsung may have been right about the potential of the S6 unit, reports (such as the one by Barron’s) have suggested that they had grossly miscalculated the demand for it, particularly the Galaxy S6 Edge. This costs them a great deal in terms of potential sales.
Meanwhile, a report from CNN Money also revealed that the dip may also have been caused by Samsung also misjudging the demand for its lower-priced S6. This time, they may have actually produced significantly more than what the market wanted.
According to the Wall Street Journal, their sources had revealed that Samsung had predicted early on that the S6 smartphone would actually edge out the S6 Edge in the market, 4 to 1. And hence, they had decided to go about production with these odds in mind. In other words, they never realized that the market wanted the more expensive S6 Edge more until it was too late, at least where their sales for the 2015 second quarter are concerned.
Meanwhile, The Wall Street Journal has also learned that executives in the company had told analysts during a conference in call in April that they would be able to meet demand for the S6 Edge by the end of June. Samsung has also reportedly made some reconfigurations in its operations – primarily, in Vietnam – to produce as much as S6 Edge as the market wants. Hopefully, this would translate to a more favorable performance for the smartphone maker for the remainder of the year.