On December 28, 2013 we posted a report titled "Korean Press Shocked at Samsung's Galaxy S4 Sales Disaster," wherein we noted that Korean analysts were forecasting a profit drop for Samsung's Q4. The original Q4 estimates from analysts had averaged 10.2 trillion won. They now foresaw Samsung hitting 9 trillion won. But the news is now even worse. Korean analysts are now stating that Samsung Q4 operating profit fell 18% to 8.3 trillion won ($7.8 billion US) from the prior quarter's record earnings, missing analyst estimates. At 8.3 trillion won, it was even below the most bearish forecast of 8.8 trillion won, and was the lowest since the 8.06 trillion won of the third quarter of 2012. The guidance was released earlier today, ahead of full quarterly results scheduled for January twenty-fourth.
Lee Seung-woo, an analyst at IBK Investment & Securities, stated that "Even taking into account one-off costs, the profit is lower than expected. Samsung has not provided details, but smartphone profit may have fared worse than expected, given increased marketing expenses."
Samsung is bracing itself for its weakest smartphone profit growth this year since it started making the devices in 2007, as arch rival Apple challenges its domination in China's $80 billion market.
Samsung's mobile devices business, which earns two-thirds of the company's profit, will come under pressure when Apple makes its phones available from Jan 17 via China Mobile, through which Samsung has been selling smartphones for around seven years.
The report further stated that "Apple is also widely expected to sell smartphones with larger screens come autumn when it traditionally announces products, neutralizing a selling point that Samsung has enjoyed since introducing its Galaxy Note in late 2011."
In fact, International Business Times is reporting today that the "Chinese daily Huanqiu, citing supply chain sources, has revealed that Apple intends to release a new iPhone phablet series with 5.0-inch plus display as early as May, and the next iteration of the iPhone - iPhone 6 - in September." While speculation of such a device remains debatable, such a product from Apple could definitely be damaging to Samsung's bottom line being that they were the first to enter the market with smartphones with larger displays. It's a very popular trend and one that is gaining momentum in the market.
A Korean business publication noted this morning that "With Samsung Electronics' negative performance outlook for the last quarter of 2013 turning into a reality, keen attention is being paid to how it will tackle the slump down the road."
Except for Apple's iPhones, "the high-end smartphone market of handsets priced at US$500 or more has remained in the doldrums across the world since last year. The average selling price of Samsung's phones dipped below US$300 for the first time, to reach US$272 in the third quarter. Under the circumstances, experts are forecasting that Samsung will concentrate on the market of between US$300 and US$500 so as to improve its profit-making capabilities, the deterioration of its profitability is likely to continue."
But Samsung isn't alone in aiming their guns at the mid-market in 2014, as all smartphone makers are gunning for this segment where Apple isn't deadly focused on at the moment. But even that could turn on a dime should Apple decide to drop the price of their iPhone 5C more aggressively in the fall of 2014.
Even little Motorola who roughly holds 7% market share in the US is focused on the mid-to-low end of the market going forward. The Times of India reports that Dennis Woodside, Motorola's CEO recently stated that "tapping into the next five billion consumers who can't afford a $600 dollar phone" is where they're aiming their next smartphones. "There will be different phones at different price points but we're going to be very aggressive there," stated Woodside, adding that "Consumer tastes change, and we actually think that there's a huge undercurrent of consumers who are saying, 'I don't want to pay as much for my phone ... that's actually a great opportunity."
At the end of the day, Samsung's big strategy to flood the market with cheaper smartphones accomplished very little considering that their profits won't be able to bounce back quickly heading into a hyper competitive smartphone landscape in 2014 with their competition attacking them from all corners of the globe. In the end, the news of Samsung's financial numbers was almost as embarrassing as their new TV presentation meltdown was at CES yesterday.
All Eyes now on Apple
All eyes will now turn to Apple who plans to conduct a conference call to discuss financial results of its first fiscal quarter on Monday, January 27, 2014 at 2:00 p.m. PT / 5:00 p.m. ET. With record online sales for Black Friday, Cyber Monday and Christmas Day, Apple's numbers should do well.
In fact, the latest smartphone sales data from Kantar Worldpanel ComTech published today states that "for the three months to November 2013, shows Apple’s share of smartphone sales continuing to grow month on month following the release of the iPhone 5S and 5C models. However, its share of most major markets remains lower than the same time last year as it increasingly faces challenges from its rivals.
Apple now accounts for 69.1% of the Japanese market, 43.1% in the United States, 35.0% in Australia and 30.6% in Great Britain.
Strong sales of the iPhone 5S and 5C can be linked to high levels of customer satisfaction with both models, despite fears that the lower-end 5C could damage Apple’s appeal."
Dominic Sunnebo, strategic insight director at Kantar Worldpanel ComTech, further stated that "Some people worried that Apple was risking its historically high consumer satisfaction levels by releasing a lower cost, plastic iPhone. However, the latest data for the US shows that the iPhone 5C has an average owner recommendation score of 9.0/10 versus 9.1/10 for the iPhone 5S. Both devices attract different customers but crucially each group of owners remains very happy with their choice and are recommending it to others."