Samsung expects to see a stunning 25% drop in its profit margins for the second quarter of the year. This is being put down to the slowing sales of smartphones globally, and the current strong performance of the Korean currency.
Despite the huge year-to-year fall, the largest mobile phone developer in the world still forecasts that it will make a profit of $7.1 billion for the quarter. The same period last year saw operating profits at $9.4 billion.
This is the third quarter in a row that Samsung Electronics has witnessed profit margins fall, and it is thought that the emphasis they have placed on a levelling smartphone market must now be addressed in order for the company to remain as profitable going forward.
Competition & Slowdown
Samsung has cited the increase in competition across Europe and China, the slowdown in smartphone market growth, and the fact that the Korean won rose against the dollar by more than 11% during the course of the last year. The euro also gave away 7% to the won in the same period.
This level of change in currency value affects Samsung tremendously as they have effectively lost 10% of their income against last year, before even selling any products, as they repatriate their foreign profits.
Samsung has witnessed huge growth in the last five years, and his is purely down to their mobile and smartphone division. The Galaxy range of handsets saw Samsung take its place as the world’s biggest mobile phone maker, replacing Nokia.
However, due to competition and less demand, retail prices have been forced down and this has affected margins. All analytical views seem to point to the trend continuing too.
With the Chinese market dominated by three Chinese manufacturers, Samsung has suffered in this vital territory most of all. The Korean electronics company has assumed a position of “over-dependence on the mobile phone” industry according to market analysts, although Samsung was cautiously optimistic in its prediction of a brighter outlook for the third quarter.