Earning Guidance Suggests Samsung Electronics Hit Record Low Operating Profit

Samsung, Apple, Technology, Operating, CostHas the largest information technology company in the world, fallen victim to cheaper smartphones and rival Apple Inc.(NASDAQ: AAPL)? If the figures contained in the company’s most recent quarterly earnings guidance, issued Tuesday, July 8, are any indication, yes. Samsung Electronics, which has been the largest IT company by revenue, since 2009 said its operating profit in the second quarter could hit a record low of two years on Tuesday.

Reasons?

Sluggish sales of tablets and stiff competition from cheaper, Chinese smartphones in a slow-growing smartphone market. A stronger won (South Korean currency) has also contributed to the tech giant’s loss of operating profit. Won has become significantly strong in comparison to the dollar and is in fact, at a six-year high currently.

Are Samsung’s glorious days past it?

In the April-June quarter, the company lost 24.5 percent in operating profits, as per the guidance report issued Tuesday. Samsung Electronics is likely to have registered 7.2 trillion won worth operating profit in the second quarter. An earlier poll by Reuters had the market estimate that Samsung would bag close to 8.3 trillion won of operating profits.

Earlier, the first quarter marked Samsung witness a first-time decline of its share in the global smartphone market, in four years. Samsung’s phone wing accounts for more than 70 percent of the total earning the conglomerate makes. The first quarter share of market fell to 31.2 percent this financial year. A year ago, the company held 32.4 percent of the market.

Analysts say Samsung must reexamine its smartphone strategy

The Galaxy Note 4, which is expected to be rolled out sometime towards the end of 2014 is not expected to be a game changer. Chief analyst and founder of Technalysis Research, Bob O’Donnell says the company needs to develop an alternative strategy and consider venturing into the software and services industry to prevent losing because of a maturing smartphone market.

With the rise of companies like Lenovo and Xiaomi, plus the presence of Apple Inc., Samsung faces tough competition on both, high and low ends of the phone market. Market analysts are also in favor of some dramatic changes to Samsung’s product portfolio.

To stay at the top of its game, the company needs to refresh its product portfolio, especially the products offered in the mid and low-price range. Samsung believes the third quarter will be bring better results since it has seen better conditions in the June quarter.

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