Samsung’s big profits are shrinking:
Samsung has long been the giant of the smartphone market, churning out phones like there’s no tomorrow. All good things must come to an end, however, and Samsung could finally be reaching that point. For Q2 2014, Samsung profits dropped 24% from Q2 2013. While the numbers, $51.5 billion in revenue and $7.1 billion in profit, are enormous, they represent Samsung’s slowdown in the smartphone market.
Samsung, though, sent along an explanation for the drop. The Korean Won’s up-and-up improvement is making exports much harder for Samsung. An over-saturation of the market in China and Europe has also led to a large drop in demand for Samsung devices. That issue is combined with Samsung’s struggle to gain a foothold in China. Samsung’s 3G Chinese devices aren’t selling well, because most Chinese consumers are holding out for the next-gen 4G LTE devices. On top of that, Chinese companies like Xiaomi are taking off and pushing out Samsung.
Samsung has relied on big marketing dollars to push big volumes of low margin devices. This makes them especially sensitive to low-cost competitors and currency fluctuations. Or as I wrote almost exactly one year ago today, “that’s not a sustainable operating model.”