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Samsung Electronics to be monitored for underperformance due to increasing competition

Samsung Electronics Co.s earnings report will be paid closed attention by investors this week as they look for any possible signs of weakness in the smartphone market, which may put an end to its streak of record results.

Over the last two years, Samsung Electronics Co.s profits have been constantly powered by the strong smartphone sales. This provided the technology company based in South Korea with the opportunity to become the biggest smartphone manufacturer by shipments in the world, shifting Apple Inc. from the first place. However, the companys profit growth has been weighed on by high marketing costs needed to promote high-end smartphones and smartwatch in Europe and the U.S., as well as by the constantly increasing competition of low-cost rivals on the Chinese market.

Samsung Electronics Co. is also known as one of the largest manufacturers of television sets and chips and displays for consumer electronics. The majority of the companys profit is still being generated by smartphone sales, but on the market there is a variety of new products, which pressures the margins of the company and is one of the main reasons why the average selling prices are quickly coming down. Furthermore, Samsung Electronics Co. is becoming less competitive overseas due to the strengthening local currency and the fact that the smartphone market is getting saturated. At the same time the company went through some difficulties and legal expenses associated with its unavoidable patent-infringement lawsuits with Apple.

One of the main rivals of Samsung – Apple Inc. has become more competitive though as it began selling its iPhones to China Mobile Ltd on Friday. Analysts estimates for Apples iPhone shipments show that the latter are expected to rise sharply in 2014 as a result of the deal between the two companies, which provides Apple with access to more than 760 million subscribers of China Mobile. Samsungs most serious rival is also expected to focus on larger-screen iPhones, said people with knowledge of the matter.

One of the senior analysts working for Sanford Bernstein, said in a report cited by the Wall Street Journal: “High-end smartphones profits will be challenged in 2014 with the introduction of a larger-sized iPhone. Even if Apple suffers delay or execution issues, this will be an overhang for Samsung.”

Samsung Electronics Co. Ltds shares rose to KRW 1 324 000 on Tuesday, up 0.61% on the day, but their one-year return rate is down 8.91%.

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