Samsung Electronics to deal with the decline in profits

Tencent Technology Sun reported on July 9

With the rise of mobile tide Samsung Electronics Empire, is going through a more painful period.

Yesterday, Samsung Electronics released the second quarter of 2014 estimated earnings. Samsung Electronics expects second-quarter operating profit of 7.2 trillion won (about 71.2 billion US dollars), a substantial decrease of 24.5%, which will be the third consecutive quarter of Samsung Electronics operating profit decline, but also after the second quarter of 2012 , The first operating profit below 8 trillion won mark. Samsung Electronics is also expected second-quarter sales of 52 trillion won, down 9.4%, down 3.13%.

In addition, third-party data shows that Samsung Electronics 'market share in global smartphones dropped from 32% to 31%, which is the first decline in Samsung Electronics' market share since the fourth quarter of 2009.

A series of data are suggesting that the current smart phone overlord, the current days are not good, has plunged into the quagmire of slow growth. The face of several consecutive quarters of Samsung did not dazzling performance, many people will be questioned: This is the stage of the downturn, or a precursor to the collapse of the Empire?

High-end market saturation to Samsung revenue and profitability continued to decline

Let's look at two pictures first:

Samsung Electronics nearly seven quarter revenue growth curve

Samsung Electronics nearly seven quarter net profit growth curve

From the above two pictures can be seen, whether it is revenue or net profit, Samsung's performance growth slowed down significantly, or even negative growth situation.

For the poor performance just released, Samsung Electronics believes that the continuous decline in operating profit, mainly due to the more intense competition in the Chinese and European markets, resulting in poor sales of low-end mobile phone products. Samsung also said that continued price competition and lower demand for 3G products in the Chinese market are also contributing to poor performance.

Samsung's explanation is not insulting. After this year's MWC conference, Reuters wrote: "The mobile phone industry is currently targeting the growth of low-end smartphones under $ 100, with entry-level smartphones now representing the largest growth in the industry, as the market for high-end smartphones is already saturated hope."

Two major market research agencies also published data to support this view:

IDC: Global smartphone shipments in 2014 will grow by 19.3%, down from 39.2% in the previous year. In mature markets for smartphones such as North America and Europe this year's rate of increase will be just a few percent of the unit, with most of this year's growth coming from devices priced under $ 150 and emerging markets.

Gartner: Between 2012 and 2017, the share of high-end smartphones in total smartphones will drop from 41% to 22%.

It can be seen, the high-end smart phone market has bid farewell to the era of crazy growth, is gradually becoming saturated, the entire smart phone market is leaning toward low-end products and developing countries, coupled with Huawei, ZTE, Lenovo, etc. As the representative of the rapid expansion of smart phone manufacturers, resulting in Samsung revenue, net profit growth doubled decline.

Samsung how to deal with high-end market saturation?

As cellphone business accounts for 70% of Samsung's operating profit, how to cope with the saturation of high-end smartphone market has become the primary challenge for Samsung to get rid of the current dilemma. In May, Shen Zongjun, co-CEO of Samsung Electronics' mobile products business, answered this question in an interview: "My biggest goal is to explore new opportunities for growth in emerging areas such as wearables and mobile security while further strengthening Low-end mobile phone product line.I also pay close attention to the needs of consumers, to see what the needs of the area is not met. "

In the layout of low-end smart phones, Samsung will look at emerging markets. Shen Zongjun said smart phone penetration rate in many developed markets is already high, and we are entering a period of slow growth. We need to focus on new markets like Africa and Samsung has made some progress in Africa.

Data show that the current market in sub-Saharan countries, smart phones market penetration rate of less than 4%, compared with the global average, there is still a big gap. And at the end of last year, Samsung Electronics announced a high-profile announcement that it will aggressively push into the African market and strive to double its 2014 sales of handsets.

In addition, for the smart phone business, Shen Zongjun also said that 4G will become the main driver of Samsung's growth. It is estimated that the 4G smart phone market will grow at an average annual rate of 30% by 2017, reaching 680 million units. All Half of the handsets sold will be 4G handsets.

According to Claire Kim, an analyst with South Korea's Daishin Securities, Samsung's mobile phone market is expected to pick up in the third quarter of 2014 due to the growing demand for 4G smartphones in the Chinese market. "Given the impact Apple's new products can have on the entire market, This we can not predict, therefore, as long as Samsung can maintain a minimum market share of 20%, then the third quarter of mobile phone shipments will increase significantly. "

Although most of Samsung's revenue and profits from the smart phone business, but Samsung did not ignore the pioneering other emerging areas. From the first half of this year, Samsung Electronics's various strategies, it has begun to plan to expand the product line, which for Samsung Electronics, is a positive signal.

At this year's CES, Samsung introduced Smart Home smart home platform, consumers at home can be a variety of devices connected through the network, and then can be controlled by smart phones and other smart home systems.

In the smart phone era, Samsung over-reliance on Google, more than 95% of smart phones equipped with Android system, once Google to take some restrictive measures on Android, the impact on Samsung is fatal. However, in the new field of smart home, Samsung took the lead in launching the platform system, coupled with its inherent advantages of home appliances hardware, will seize the opportunities in this new field.

In addition, Samsung has introduced several products in the wearable device area. According to the latest data released by market research firm ON World, global shipments of wearable devices will reach 700 million in 2019, including smart watches, smart glasses and other wearable sensor devices.

ON World said that in the future about 70 companies will join the wearable market competition, of which more than half of the company mainly produces smart watches. In 2013, the top five smart watch makers in the world were Samsung, Nike, Pebble, Sony and Garmin respectively. From this we can see that in this new field, Samsung also acts as the industry's "vanguard."

As can be seen from the above, Samsung is in accordance with the strategy of Shen Zongjun deployment, that is, to strengthen the layout of low-end market, enrich product lines and so on. But Samsung can out of the quagmire of vulgar growth, the answer may be announced in the next few quarters.