Samsung’s Corporate Ship Floating Mighty Close to Perilous Waters with Profits Down 31%

August 12, 2014 - Written By Tom Miller

In an increasingly competitive tech market, Samsung is finding itself beset at all sides by competitors who are finding ways to produce comparable devices on the cheap. That leaves Samsung in a sticky situation in which they are in danger of becoming increasingly irrelevant in the broadening market of consumer tech devices. Given the size of the company and the amount of overhead it must have, it might take more than just innovation to bring the company back around to being the innovative giant it once was — deep cuts might be the necessary ill-tasting medicine it needs.

But, whether those cuts are large or small, what’s clear is that Samsung is in dire straits. Posting a 31 percent drop in its mobile division is nothing to sneeze at and with managers handing back 25% of their bonuses of their own accord makes clear the writing on Samsung’s wall and means that the first wave of cutting back has begun.

Samsung has been known for their innovative and attractive devices even as their yearly profit has fallen for the last three quarters and production costs have increased. Samsung cites a stronger Korean currency, lower demand (some of which is due to lower 3G device demand as China plans a new 4G LTE network expansion), higher inventory, and increased costs amid the ramp-up to the S5 release as some reasons for the decline in profit in the mobile handset division. Samsung’s other divisions (Memory, TV, Network Devices, Appliances) have either remained flat or increased slightly. Even with these slight gains in other areas, since the mobile division made up about 85% of Samsung’s profit in Q1 of 2014, a slight decrease there can amount to a significant decline in overall profit.

Samsung plans to change their smartphone strategy to make it more “aggressive” in order to compete with their rivals in a growing Chinese market. In fact, they expect growth in all divisions in the second half of 2014 due to strong seasonal demand. Whether that will be enough to improve overall performance will be up to the market to decide.

handset manufacturer performance graph