Samsung Issues Earnings Warning on Slower Smart Phone Sales

Samsung Issues Earnings Warning on Slower Smart Phone Sales

The Next Big Thing may have been last year

Samsung Electronics, the world's largest maker of smart phones, this week issued a warning for its most recent quarter, noting that profit would fall an estimated 24 percent to a still-heady $7.1 billion. The consumer electronics giant cited a number of factors for the shortfall, but analysts are, of course, looking most closely at the firm's smart phone and tablet sales.

"The earnings forecast is the result of the strong Korean currency throughout the second quarter as it appreciated against the dollar, euro and most emerging market currencies," a Samsung Electronics statement notes. "The company also witnessed a slowdown in the overall smartphone market growth and saw increased competition in the Chinese and some European markets. And this led to higher inventories for the medium- and low-end smartphones."

Samsung added that the second quarter is typically a weak selling period for smart phones in China, which is the world's largest market for the devices. Likewise, an ongoing move from 3G to 4G wireless technology in that country has caused many consumers to wait until they can purchase 4G phones.

Samsung confirmed a growing understanding about tablets as well: Sales are slowing greatly because consumers no longer upgrade these devices as quickly as they do with smart phones. So instead of upgrading every 1-2 years, tablet users upgrade every 2-3 years. And the popularity of phablets like the Samsung Note lineup has further diminished demand for smaller tablets, which were once the volume part of the tablet market.

The company said that the current quarter should provide "a more positive outlook" thanks to the coming release of new smart phones, including a Galaxy Note 4 phablet. But Samsung released its most auspicious smart phone to date, the Galaxy S5, in the previous quarter, and that launch wasn't impactful enough to grow profits year-over-year. Samsung didn't mention this in its earnings forecast note, but sales of (non-Apple) high-end smart phones have fallen precipitously over the past year as consumers have turned to more affordable models. As the average smart phone price falls, so does Samsung's profits.

Samsung Electronics isn't pinning all of its hopes on smart phones and tablets, though. The firm hopes to see further growth in new device types as well.

"Samsung will continue to expand its B2B businesses and looks forward to exceeding consumers' expectations by offering the most innovative wearable devices, smart home appliances, and Internet of Things (IoT) devices," the company added.

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