Samsung is predicting a 24 percent reduction in profit for the second quarter, compared to the same period last year. Samsung is forecasting a profit of approximately $7.1 billion for the quarter, well short of earlier expectations of $8 billion, and a more than $9 billion profit for the second quarter of 2013.
Samsung attributes the reduction to increased competition in the entry- and mid-level smartphone business and increased sales of large “phablet” phones cutting into tablet sales. Samsung’s profit on U.S. sales has also been negatively impacted by exchange rate swings.
Another significant factor is that the smartphone is rapidly becoming a mature product in a mature market. Differences from one phone generation to the next are becoming more marginal, giving buyers less reason to replace existing phones. And the market is becoming saturated, with many buyers having already upgraded to smartphones. Both phenomena have forced Samsung to spend more on advertising to maintain sales volume. Maybe many manufactures no longer provide user-replaceable batteries in an attempt to force buyers into new phones.
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Absent a significant advance in smartphone and/or network tech which motivates customers to upgrade in large numbers, these problems are likely to face most of the smartphone industry. This mirrors what has happened in the PC marketplace, where virtually every computer sold today is more than powerful enough for the typical buyer’s needs, and there are no applications on the horizon demanding more power. A decent PC can easily last the typical user 3 to 4 years, and if you avoid breakage, the same is rapidly becoming true of smartphones.
Samsung is hoping the market for wearable devices and home automation will drive growth in the near future, but the potential of those markets remains to be seen.
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