The Samsung Group announced Thursday that its yearly profit fell for the first time since 2011. The electronics giant still beat analysts’ expectations as its slowing smartphone sales were buoyed by demand for its computer chips.
Sales of Samsung’s Galaxy smartphones made up two-thirds of its profit for the last two years, but they will be eclipsed by its semiconductor business in 2015, according to analyst Lee Sei-cheol from Woori Investment & Securities. The company announced that its 2014 operating profits were expected to reach 24.9 trillion won, or $22.6 billion, down 32 percent from a year earlier.
Samsung is feeling the squeeze from Apple on the high end, especially now that the iPhone comes in two new sizes — “Extra Large” and “Waffle Iron.” (I know, I know — everybody loves the big smartphones but me.) Worse for Samsung is that they’re having the floor eaten out of their massive low-end sales by even lower-cost copycats like China’s Xiaomi. (Somewhere, Jony Ive and the ghost of Steve Jobs are doing the Happy Dance together as they watch their copycat get consumed by copycats.)
The point to remember here is that Samsung was literally — and I’m not abusing that word — literally the only Android phonemaker generating any profits worth mentioning. What Samsung’s troubles mean for Android going forward is anyone’s guess, although it took the Android market a comparatively short time, maybe even a shockingly short time, to become just as commoditized as the Windows PC market. Over the course of decades, Windows generated billions and billions for Microsoft and for PC makers before commoditization (and OS X) sucked all the profits out of the Wintel business model. Android went down that same road in just three or four years.
The key difference is that Android doesn’t have to generate profits for Google — but what happens to the OEMs who at some point are going to have to generate a profit or two?