Samsung Profits Fall, Despite Android Domination

Samsung has posted a 20 percent fall in net profits, as the slowdown in the saturated smartphone market, coupled with intense handset competition and a strong Korean currency all took their toll on its earnings.

The results are troubling, especially considering new research shows the Android operating system (which Samsung uses) almost completely dominates the smartphone market.

Financial Woes

For the second quarter, Samsung posted a net profit of 6.25 trillion won (£3.59bn), down from 7.77 trillion won (£4.5bn) in the same year-ago period.

There was equally bad news on the sales side, as revenues fell to 52.35 trillion won (£30bn), from 57.46 trillion won (£33bn) a year ago.

A quick look at the breakdown of business at Samsung, reveals that the mobile handset division continues to make the bulk of the money with an operating profit of 4.42 trillion won (£2.5bn) on 28.45 trillion won (£16bn) in revenue.

Its chip business posted an operating profit of 2.09 trillion won (£1.2bn) on revenues of 16.23 trillion won (£9.3bn). This unit was helped by demand for DRAM memory chips for personal computers and servers.

But it is the performance of Samsung’s IM division (which includes IT and mobile), which is the most closely watched unit within the South Korean conglomerate. Despite the launch of its flagship device, the Galaxy S5 handset, earlier during the quarter, Samsung said that smartphone (and tablet) demand from consumers remained static, increasing fears that the smartphone market has reached saturation levels. There are also concerns that Samsung is feeling the pinch from cheaper handset rivals such as Xiaomi and Huawei in China.

Samsung however pinned the blame on a traditionally slow second quarter, and said handset sales would rise 10 percent in the July to September period. It also highlighted the strength of the Korean currency as another issue affecting its performance.

Despite the prediction of more handset sales, Samsung offered little positive news to assuage the gloom, saying that the second half of 2014 would be “a challenge.” It also said that its mobile division expected a decline in average sales price in the current quarter from the April-June period.

“Considering intensifying competition of price and specifications as well as the release of new competing models, it is difficult to expect earnings to improve from the second quarter,” Senior VP Kim Hyun-joon was quoted by Reuters as saying, whilst speaking about the mobile business.

Earlier this week Samsung told TechweekEurope that it had postponed the launch of the first smartphone running Tizen, claiming it needed more time to develop the open source operating system’s ecosystem.

Android Domination

The gloomy results at Samsung come after a new report from Strategy Analytics revealed that Google’s Android operating system continues to completely dominate the smartphone market.

The Strategy Analytics report revealed that Android captured a new record of 85 percent of all smartphones shipped globally in the second quarter. Its domination came mainly at the expense of BlackBerry, Apple iOS and Microsoft Windows Phone.

Its figures revealed that the smartphone operating system market share was as follows: Android with 84.6 percent, up from 80.2 percent a year ago; Apple iOS 11.9 percent, down from 13.4 percent; Microsoft Windows Phone with 2.7 percent, down from 3.8 percent a year ago; and finally BlackBerry with 0.6 percent, down from 2.4 percent.

“Android’s domination of global smartphone shipments reached a new peak in Q2 2014, with an impressive 85 percent of all smartphones now running Google’s OS. Android’s gain came at the expense of every major rival platform,” said Woody Oh, Director at Strategy Analytics, adding that BlackBerry saw its global smartphone share tumble from 2 percent to 1 percent in the past year due to a weak line-up of BB10 devices.

One Horse Race?

“Apple iOS lost one point of share to Android because of its limited presence at the lower end of the smartphone market,” said Oh. “Microsoft Windows Phone continued to struggle in the United States and China, and its global smartphone marketshare fell from 4 percent in Q2 2013 to just 3 percent during Q2 2014.”

“Like the PC market, Android is on the verge of turning smartphone platforms into a one-horse race,” said Neil Mawston, Executive Director at Strategy Analytics. “Its low-cost services and user-friendly software remain wildly attractive to hardware makers, operators and consumers worldwide. Rival OS vendors are going to have to do something revolutionary to overturn Android’s huge lead in smartphone shipments. Apple’s push into the big-screen phablet market and Firefox’s expansion into the ultra-low-cost smartphone market later this year are the only major threats to Android’s continued growth at this stage.”

“Global smartphone shipments grew 27 percent annually from 233.0 million units in Q2 2013 to 295.2 million in Q2 2014,” said Linda Sui, Director at Strategy Analytic. “We estimate worldwide smartphone growth has halved during the past year, from 49 percent a year ago to 27 percent today. Global smartphone growth in the current quarter is at its lowest level for five years, and there are wide variations by region. For example, Africa and Asia are booming, while North America and Europe are maturing.”

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