Samsung Electronics Co. Ltd reported the smallest quarterly earnings since 2011 as the giant faces increased competition from lower-cost Chinese rivals and Apple Incs new iPhones.
Earlier this month the company warned about weak performance in the third quarter. On Thursday, the worlds biggest technology company by sales reported operating profit of KRW 4.06 trillion, a 60% drop from year-on-year, as projected.
Revenue fell from KRW 59.08 trillion a year earlier, to KRW 47.45 trillion, which led to a 49% fall in net income, to KRW 4.22 trillion, compared on the same basis.
Competition in the smartphone industry is at its peak, with Apples iPhone 6 gaining clients who prefer larger screens, followed by Xiaomi and Lenovo connecting with budged buyers in China. Even LG is on the rise, having reported nearly doubled operating profit.
The tough environment is affecting Samsungs other divisions. The company reported drops in its processor chip business unit and display panels, which shrunk 23% compared to last year.
“Samsung has lost touch with its customers as it has been unable to differentiate its offerings from established and emerging competitors,” said Dan Wagner, CEO of Powa Technologies. “The jury is out if Samsung will recover in this tough, saturated market.”
The technology giant said it would change tactics and focus on the lower end of the smartphone market as analysts had expected. The mid-to-low segment of the market has been growing strongly, especially in Asia, and it makes a much better target than the saturated premium area. Samsung explained that this is part of the reason why earnings decline, as the shift to cheaper devices pushed down margins to 18% from 24%, compared to an year earlier.
“Our high-end smartphone sales result was somewhat weak,” Kim Hyun-joon, a senior executive at the IT & mobile division, said on a conference call.
Last year smartphone sales were 88.4 million, in Q3 of 2014 they were down 10% to 79.2 million units, but still put the company is in the number one spot by volume, according to Strategy Analytics. Samsungs global share fell to 24.7% in the third quarter from 35% last year, according to the same research group.
“We will fundamentally reform our product portfolio, and significantly enhance our competitiveness for each price tier,” Mr Kim said, as Samsung made a favorable forecast for the future.
Shares of the company were pushed higher as Samsung predicted better performance in the last quarter that should be driven by continuing growth in the memory chip business.
Samsung Electronics Co. Ltd gained 4.51% on Thursday and closed at KRW 1 181 000.00 in Seoul, marking one-year decrease of 22%. The company is valued at KRW 180.47 trillion. The stock was up 5.07% by 08:25 GMT in Frankfurt to trade at 442.35 euros.
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