The company makes tablets, printers, TVs, home theater systems, camcorders, kitchen appliances and more. On top of that, it manufacturers key high-tech components like LCD panels, semiconductors and flash memory, supplying competitors such as Apple.
In its latest earnings report, Samsung’s mobile division reported earnings that were up by 8% over the previous quarter, yet profits were down 3%. Selling Galaxy S4’s has become more expensive, demand is softer than expected, cheaper Chinese smartphones are hitting shelves and competitors from Apple to Nokia are either currently releasing or prepping budget-friendly alternatives to their current flagship smartphones.
All of these factors have hit Samsung’s mobile profits and are expected to make things even worse going forward. As a result, the company’s stock has joined those of other smartphone manufacturers on a downward trend this year.
Samsung’s many other lines of business — particularly those components — have helped cushion the blow. In comparison to the hit Apple has taken, Samsung’s 20% slide from its February high is relatively modest, but it reflects that the company still is very reliant on smartphones for profit. Despite selling virtually everything needed to equip a modern home or office, two-thirds of Samsung’s profit is generated by its mobile division.
With analysts reporting annual smartphone growth expected to fall from 58% in 2013 to just 20% in 2015 amid “smartphone exhaustion” and the Galaxy S4’s sales lower-than-expected performance expected to require a push for release of less expensive (and lower profit margin) models, Samsung’s mobile division is likely to see further profit pressure.
The bottom line is that, despite its diversification, Samsung currently remains as vulnerable to market forces as competitors like Apple. The company rode the premium smartphone wave to record highs but as smartphones become more of a commodity, releasing a flagship mobile device like the Galaxy S4 is no longer a guarantee of record sales and resulting gains in market value.
While not quite a “one-trick pony” — thanks to semiconductor and display units that have performed well — Samsung (like Apple) is still hitched to the smartphone wagon.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.