Three Reasons Why Samsung Is Predicting A Profit Decline

Samsung has confirmed that it expects its first annual profit decline since 2011.

The news comes despite a small boost in the fourth quarter, which may have stabilised earnings temporarily.

Samsung is the world’s largest smartphone manufacturer, beating Apple and Xiaomi in terms of shipments. But the firm’s fourth quarter operating profit is tipped to be 5.2 trillion won ($4.74bn), setting 2014’s outlook at around 25 trillion won, the lowest in three years. The annual results will be announced at the end of January.

iPhones

Despite a raft of new smartphone products in 2014, such as the Galaxy S5 early on in the year and the Galaxy Note 4 shifting in high volumes towards the end of 2014, Apple’s iPhone 6 releases cut dramatically into Samsung’s market share.

Emerging markets

Consumers in emerging markets are opting for cheaper phones, and are tending to steer clear of Samsung’s more premium offerings. At the end of 2013, Samsung’s INdia market share was 34 percent, but mid-2014 it was down to 29 percent following cheaper brands such as Xiaomi and Indian manufacturer Micromaxx gobbling market share.

The China problem

As the world’s largest smartphone market, China is an important battleground for any mobile manufacturer. Xiaomi, in the last few years, has risen from nowhere to take the lead in terms of

market share in the country. Some analysts point to Samsung’s lack of innovation being the problem. Frost & Sullivan analyst Andrew Milroy told the BBC: “It’s not come out with anything spectacularly innovative recently.

“Its new models are basically an improvement of existing products, but they pride themselves on being innovative, so they really have to start focusing on that to stay in the game.”

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