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Ouch: Samsung warns of 60% profit drop as sales slow

Samsung warned investors on Tuesday that amid falling sales, profits would be down. Way down.

How much? Around 60 percent from the year ago quarter when the company earned 10.2 trillion Korean won (US $ 9.5 billion). Samsung says in its third fiscal quarter of 2014 it will earn 4.1 trillion Korean won. Sales will be lower from last year’s third quarter as well, but not in such a dramatic fashion: Samsung expects sales to top 47 trillion Korean won; down from the 59.10 trillion a year ago.

This isn’t the first sign of Samsung’s slowdown. In July, the company also issued new lower guidance for investors as tablet and phone sales weren’t growing.

Galaxy S5 copper

And there were other hints as well: The new Galaxy S5 flagship phone released earlier this year sold 11 million units in the first month of availability. I noted that was only a 10 percent boost over the prior year’s model in the same time period, suggesting that the company needs to focus more on areas of higher growth potential, such as the low- and mid-range mobile device market.

That may sound strange, given that [company]Apple[/company] has never played in the low-cost market and it seems to be doing just fine, but Samsung is not Apple.

Samsung doesn’t, for example, have completely control of both the hardware and software for its devices. Since it uses Android software like all the other [company]Google[/company] Android hardware partners, it’s difficult to stand out from the crowd. And although Samsung has made several attempts to create an ecosystem with its own app and media stores, Google Play is the still the king of Android content, so Apple’s iTunes is a clear advantage.

Samsung Music Hub

While it’s been interesting to watch Samsung rise through the smartphone ranks starting in 2010 with its original Galaxy handset, I’m wondering how the company will tackle the latest challenges. It can’t keep too much of its focus on the high-end Galaxy S and Note lines when that market segment continues to get saturated.

 

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