Samsung misses Q4 profit target as mobile market saturates, competition increases

Daniel Bader

January 24, 2014 12:05 pm

Samsung’s Q4 balance sheet would be enviable to most other Fortune 500 companies, but the Korean giant must be disappointed in an operating profit that declined for the first time in over two years.

Posting profit of $7.73 billion on revenue of $54.5 billion USD, the company’s numbers declined sharply from the previous quarter, caused by an 18 percent profit decline from the usually-reliable mobile unit. While the Galaxy S4 is in its final quarter, and has sold over 40 million units, analysts blamed the slowdown on increased pressure from Chinese manufacturers offering Android devices at prices that undercut even the cheapest Galaxy. In North America, the iPhone 5s is blamed for moving fewer Galaxy S4 units, too, but it could be that the latter has been on the market a quarter and a half longer.

While the Note 3 is still the company’s fastest and newest high-end product, the market is narrowing for such devices in developed markets; most users already have a smartphone, and first-time buyers are opting for cheaper handsets. Samsung met those demands with the Galaxy S4 Mini and Galaxy Mega — and will move to do so in the mid- to high-end with the Galaxy Note 3 Neo — but it will be interesting to see how the Galaxy S5 fares when it is released in March or April.

North American Samsung Smartphone Usage

Though the Galaxy S4 has been extremely successful for the company, customers complained that it was too similar, both in design and functionality, to the Galaxy S3, still the most popular Android device in North America nearly two years later. According to Chitika, an online ad network analyzing smartphone usage, “More than 57% of North American Samsung smartphone Web traffic is generated by Galaxy S III and IV users. With a full 10 percentage point lead, the Galaxy S III remains the largest source of Samsung smartphone traffic within the continent, besting the total of the newer Galaxy S IV.

While the decline in operating profit should concern shareholders — and temporarily wiped $8 billion from the company’s market cap — Samsung is still in a very strong financial position. Part of the profit decline can also be blamed on a one-time bonus payment to employees of around $735 million, given to celebrate the 20th anniversary of the company’s new management strategy.

  • JTon

    Wow! With how loud Note users are I would have expected to see their numbers a bit higher

    • MXH070

      So true…. so true…..

    • It’s Me

      Seems like tons get shipped, many of those get sold to customers but few of them actually get used. Those are some expensive paperweights.

  • mwahahahaha

    The beginning of the end has finally arrived!!!!!! R.I.P Samsung…….

  • Josh Brown

    If I were like the BB fanboys on here, I would day: Samsung is exactly were they want to be. The wanted to lose money this quarter and it is going to be the best thing ever for the company.

  • TheTruthIsNotOutThere

    I think the biggest reason is that most Americans are dialed in for 2 years. The s3 and note 2 sold strong enough that most didn’t need to upgrade. This year should be a different story now that those same 2 year terms are coming to an end

    • It’s Me

      Two year contracts are not new in the US. Every Samsung phone released over the last 5 years has had to content with the 2 year lock in. This recent downturn in numbers goes beyond that 2 year terms, or else you would have to apply the same reasoning to each previous year.

      You might be right that the S4 and Note 3 are not differentiated enough to justify people replacing the S3 and N2. Have they fallen into the “Apple Trap” of releasing models that look just like the last model and that has hurt sales?

    • TheTruthIsNotOutThere

      Yes I would agree they have fallen into that apple trap, definitely.

      And let’s not forget that there are less new smart phone buyers out there. .. Aside from the whole 2 year term thing. That doesn’t help either. ..All these factors added up.

    • Tom

      Not so much the physical looks, more like the fact that there aren’t any significant tangible gains from upgrading anymore. Upgrading from the S2 to the S3 would be a world of difference – much larger screen, later OS version, big performance jump, resolution jump to 720p, etc. I have a friend who upgraded like that and he could really feel the differences. However when you compare the S3 to the S4, or even to the Nexus 5, HTC One, etc, you just don’t feel like there’s such a huge gap as there was compared to the preceding gen. Diminishing performance returns in other words!

      It’s sort of like why PC sales are getting smaller (and no I don’t believe it’s due to tablets). We’ve reached a point where components are reliable (e.g. a budget laptop will still be 100% functional after 2-3 years), and where budget components are more than capable of handling the average Joe’s work, hence a lot of people I know have not bought a new PC since 2009/2010, even though they may have bought new ones every 2-3 years in the past. Even gamers like me see ourselves upgrading our machines considerably less often than we used to, because of diminishing performance returns.

    • Tom

      More like the highest end phones of 2012 are still going strong and there simply aren’t any apps that noticeably look/perform better on the new stuff than on those “outdated” phones. We’ve reached a point where the returns are seriously diminishing. I myself have a Nexus 4 and it’s good enough. My eyes can’t distinguish between 720 and 1080 on a screen smaller than my laptop’s. I can well afford to buy the Nexus 5 (and it is excellent value) but I simply don’t have any good reason to ditch my N4.

    • TheTruthIsNotOutThere

      Excellent post tom. I’m rocking a note 2 and my wife upgraded to the s4. Her chipset is new and a bit more potent, doesn’t show in a side by side. The difference in screen rez too is barely noticeable. These factors alone I will hold out for the note 4 or whatever crazy device catches my eye