Samsung (KRX:005930) Q3 2014 Results Paint A Bleak Picture For Their Mobile Division!

Samsung Electronics Co. Ltd. (KRX:005930) – the world’s biggest smartphone manufacturer – is apparently going through a bit of a rough patch. According to analysts this week, Samsung’s operating profits for the third quarter are projected to plummet 47%, while sales are projected to fall 15%. Grim reading for the Korean giants.

With cheaper competitors biting at their heels at the lower end of the market (namely Xiaomi) and Apple Inc. (NASDAQ:AAPL) supersizing the iPhone and making iOS8 more customizable to bring it up to par with the premium Galaxy range, they have a battle on their hands from both sides.

The fact that Samsung were first to the market with a 5.5 inch screen won’t make much of a difference now that the playing fields are level and, with Apple selling 10 million iPhone 6/iPhone 6 Plus on the opening weekend last month, that’s 10 million people that presumably won’t be buying the Galaxy S5 or S6. They had their head start and now things are getting real.

If that isn’t bad enough, Samsung were overtaken by Xiaomi as the largest smartphone maker in China in Q2 2014, as well as in India that same quarter by local company Micromax Informatics. Their revenue from mobile handsets peaked at the end of last year and seems to have been on a downward spiral since then.

samsung-revenue Q3 2014

With the smartphone wars usually framed in either an iOS vs. Android context on an operating system level, or an Apple vs. Samsung context on a handset level, Samsung and Android are pretty synonymous with each other in the smartphone space. Maybe not for long though with more and more viable competitors coming onto the scene like the aforementioned Xiaomi, and newer brands like the OnePlus One.

They have made more of an effort over the last few months to lessen their reliance on Android by pushing their Galaxy apps platform, trying to insulate themselves from becoming a commodity like Apple does with iOS, but with declining sales, they are in less of a position to do that.

While Apple’s models are entirely in the high-end bracket, Samsung are in danger of getting stuck in a no-man’s land of being too expensive for the low-end of the market, and now being in a straight shoot out with Apple in the high-end.

So, what to do for Samsung? Focus on cheaper models to fight for market share in emerging markets like China and India? Innovate in areas that competitors can’t, like with the flexible screens that they have been testing? They certainly have the resources as well as a strong R&D department, but the market is being commoditized and a change of tact may be needed to stop the rot.

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