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Decline in Smartphone Sales Causes Samsung a Huge Loss

SEOUL: Samsung Electronics Co. had to face the unexpected outcome which they might have never predicted or thought of. On Thursday, they had to face a huge downfall in the second quarter profit. They stated that the result was quite shocking and they were uncertain about it if the earnings from the handset business would help improve the current quarter.

As the increment in sales of smartphones had declined drastically, Samsung warned that earlier in this month that this quarter is going to be their worst in two years. Currently the fastest growing part of the global smartphone business i.e. Samsung faced a lot of problem to compete with cheap smartphones. The shares of Samsung was divided by 4% in Seoul.

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Its net income for the April-June quarter dropped 20 percent to 6.3 trillion won ($6.1 billion) from 7.8 trillion won a year earlier. That was the lowest since the second quarter of 2012. Analysts surveyed by FactSet forecast 6.5 trillion won income.

In line with Samsung’s guidance earlier this month, Sales fell 9 percent to 52.4 trillion won while operating profit sank 25 percent to 7.2 trillion won .

Robert Yi, Head of Investor Relations said to a conference,” Samsung had higher marketing expenses as competition increased in mid- to low-end smartphones and because it tried to clear old inventory before the release of updated smartphone models in the fall. ” He further said,”Samsung sold 95 million mobile handsets in the quarter and smartphones were close to 80 percent of those sales. It sold 8 million tablet PCs,”

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During the 2nd quarter, Samsung shipped 74.3 million smartphones, down 4 percent from a year earlier, even as the overall smartphone market expanded 23 percent, according to the estimation from Research from . Chinese vendors, Huawei and Lenovo, were the companies that drove growth in global smartphone sales.

Samsung was still the world’s largest supplier of smartphones but its global market share fell to 25 percent from 32 percent. The company’s smartphones use Google’s Android operating system.

With lower handset sales, Samsung’s profits also took a hit. Samsung’s mobile business recorded 4.4 trillion won in operating profit during the second quarter, the lowest in two years. Previously, Samsung’s mobile business contributed about 70 percent of its overall profit. That fell to about 60 percent in the second quarter.

Analysts said Samsung struggled in developing nations as consumers using handsets powered by the popular Android operating system were more willing to try devices from other brands. Switching between different Android devices has become easier and cheaper than before for consumers, reducing loyalty to one brand.

Samsung’s profit also took a hit after the handset sales also went downhill. During the 2nd quarter, Samsung recorded 4.4 trillion won in the operating profit which happens to be the lowest in the last 2 years. Samsung’s mobile business contributed about 70 percent of its overall profit. That fell to about 60 percent in the second quarter.

Analysts said Samsung struggled in developing nations as consumers using handsets powered by the popular Android operating system were more willing to try devices from other brands. Switching between different Android devices has become easier and cheaper than before for consumers, reducing loyalty to one brand.

Smartphones have become ubiquitous in developed markets and are becoming so in emerging markets, making it harder to find people who are buying a smartphone for the first time, said Melissa Chau, senior research manager at IDC, a market research firm. “Just staying on Android is not going to keep you in one brand.”

In an interview with The Wall Street Journal in May, Mr. Shin conceded that the company’s most recent flagship device, the Galaxy S5, lacked “eye-popping technologies.” But he said that the company remained focused on innovation to drive future growth, adding that he has been preoccupied with finding the “next big thing” in software, hardware or wearable devices. He pointed to bendable screens while stressing the importance of software development to accompany hardware upgrades.

But Samsung’s fledgling efforts to beef up software by developing an alternate platform, called Tizen, have floundered. On Monday, the company said that it was shelving sales of its first Tizen smartphone, called the Samsung Z, in Russia.

 

 

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