Samsung eyes cheaper smartphones as profit plunges

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Samsung plans to focus on cheaper smartphones and flexible displays for high-end phones after its third-quarter profit plummeted by nearly 50 percent amid intense competition from Chinese rivals making low-cost handsets.

The low-end smartphone market is still growing rapidly, and the company aims to exploit the opportunity by improving cost competitiveness, said Kim Hyun-joon, the head of the company’s mobile communications segment said during an earnings conference call on Thursday in Seoul. Samsung also aims to differentiate its high-end products with flexible displays and new materials such as metal frames.

The world’s largest smartphone maker saw its market share drop to 23.8 percent in the third quarter from 32.5 percent a year ago, while Xiaomi rose to the third place after second-ranked Apple, according to IDC.

Samsung’s net income fell 49 percent to 4.2 trillion Korean won (US$4 billion) in the July-to-September period from 8.2 trillion won a year ago. Operating profit dropped 60 percent to 4.1 trillion won compared with 10.2 trillion won a year ago. Revenue was 47.45 trillion won, in line with an earlier guidance report.

“Tough competition leaves some uncertainties in our smartphone business for the Q4 earnings,” Robert Yi, Samsung’s head of investor relations, said during the earnings conference.

A flat smartphone forecast

Samsung sold 102 million handsets and 10 million tablets in the quarter, and a similar level of shipments is expected in the fourth quarter, Yi said. Samsung shipped 79.2 million smartphones in the period, according to Strategy Analytics.

“Samsung continues to face tough competition from Apple at the higher-end of the smartphone market, from Xiaomi and Huawei in the middle-tiers, and from Lenovo and others at the entry level,” Neil Mawston, executive director at Strategy Analytics, wrote in an email.

Korean rival LG, the world’s fourth-biggest smartphone vendor, sold a record 16.8 million devices in the quarter, taking a 5 percent global share, according to Strategy Analytics. Brisk demand for LG’s flagship G3 phone boosted overall shipments in the third quarter, LG said.

Analysts earlier noted that an estimated inventory of 40 million Galaxy smartphones in sales channels is worrisome as it is an indication of the growing appeal of rival, high quality Android devices on the market.

“The smartphone market is maturing globally, and it is undeniable that Samsung smartphone’s competitiveness has eroded to some degree,” Do Hyun-woo, an analyst at Mirae Asset Securities, wrote in a research note. Samsung’s strategy of targeting the mid- and low-tier segment is promising and the market has expectations for its flexible displays, Do added.

Samsung’s semiconductor business was one ray of light in the earnings results as memory chip sales rose about 24 percent to 7.9 trillion won in the quarter from a year earlier. Samsung said early this month it would invest about $15 billion to build a chip manufacturing plant in Pyeongtaek, south of Seoul.

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