Samsung Thrives Even As Smartphone Sales Stagnate In Q3 2018

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Samsung Electronics on Wednesday published its consolidated financial report for the third quarter of the year, posting nearly $57.5 billion in revenue and $15.4 billion in profit. The results are in line with the preliminary guidance released in early October, marking a 5.5-percent turnover jump and a 20.9-percent profitability increase compared to the same period in 2017. The South Korean technology juggernaut is now at its peak efficiency, primarily due to the continued strong performance of its memory division which accounted for around $12 billion of its third-quarter operating profit.

Regardless of the overwhelmingly positive results, one cause for concern comes in the form of stagnating smartphone shipments and sales that saw Samsung's IT & Mobile Communications report a decline in earnings. The Seoul-based company was quick to point out that the issue at hand wasn't prompted by its flagship models even as it previously admitted the Galaxy S9 and Galaxy S9 Plus haven't been selling as well as expected. Instead, Samsung is pointing to the increased competition in the entry-level and mid-range price brackets as the main reason for its mobile unit's performance drop. Currency fluctuations and increased promotional costs also ate away some of Samsung's quarter-three mobile earnings, though the firm remains adamant it has a plan to turn things around in the near future and return its smartphone and tablet division to a path of sustainable growth. 5G and foldable displays are a crucial part of that strategy, as is a new design language that's likely to be commercialized as early as next year, as indicated by the newly released report. While details on the matter remain slim, the aesthetic may be advertised as "Infinity V" and be positioned as a direct follow-up to the Infinity Display panels Samsung has been manufacturing since early 2017, using them for a wide variety of mid-range and high-end Android smartphones. Bixby will also be implemented into more product categories next year, Samsung confirmed.

The three-month period ending September 30 saw Samsung's mobile arm post the equivalent of $21.86 billion in consolidated revenue and $1.93 billion in operating income. While far from its best quarter ever in terms of mobile sales, the new report still confirms Samsung remains one of the most profitable smartphone manufacturers on the planet that's consistently making money on its hardware and doesn't have to rely on after-sales monetization such as advertising and app purchases. The tech giant believes the global demand for its smartphones will rise during the final quarter of the year, traditionally the most lucrative season for most consumer electronics manufacturers. The company is particularly optimistic about the newly announced Galaxy A7 and Galaxy A9 lines, its first products to offer triple- and quadruple-camera setups. Regardless, mobile profits are likely to continue declining over the final three months of the year as Samsung is planning to invest in more aggressive product marketing, the company said.

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Background: Between Samsung's preliminary financials from early October and exhaustive analyst predictions publicized in recent weeks, the company's latest earnings revealed little surprises. The fact extent of its mobile decline wasn't entirely expected but is also likely to be extremely short-lived, with the firm now pursuing a wide variety of technologies meant to make its products even more competitive across all price brackets. Many analysts agree Samsung's overall profits are currently at their absolute peak and will start declining as soon as the fourth quarter of the year, with the main reason for that being the state of the global memory market. The demand for NAND storage chips is already down and DRAM memory is likely to be the next segment to experience a similar trend which is widely expected to become noticeable by the end of the current quarter.

Samsung managed to take Intel's title of the world's largest chipmaker earlier this year after some 24 years of the Santa Clara-based company's dominance in the field. The semiconductor boom it has been experiencing over the last several years started with aggressive chipmaking investments a decade ago and some industry watchers remain skeptical about the firm's ability to identify the next big thing in the industry in a timely manner. Samsung itself still hasn't publicized what it believes will be its main growth generator in the long term, though the company already committed significant resources toward researching and developing emerging technologies such as 5G, artificial intelligence, and the Internet of Things.

Impact: One major takeaway from Samsung's quarter-three financials is that the company's mobile unit doesn't appear as untouchable as it once was; while the firm maintains the Galaxy S9 and Galaxy Note 9 lines sold well, they still performed worse than some of their prominent predecessors such as the 2017 Galaxy S8 series. The mid-range segment of the market represents an even bigger problem for Samsung as Chinese companies such as Huawei, OPPO, and Xiaomi are not only undercutting it but even innovating across the world, which prompted it to draft a more aggressive strategy for its non-premium devices. In other words, the new Galaxy A7 and Galaxy A9 product families aren't outliers but templates for how Samsung will approach the mid-range price bracket moving forward; gone are the days of year-long waits for features from premium Samsung devices to trickle down to their less expensive siblings. In-display fingerprint readers, 5G capabilities, triple-camera setups, and AI computing are hence expected to be implemented into both flagship and mid-range Samsung products in the near future as part of the company's attempt to reclaim some of the market share it lost to Chinese manufacturers over the last several years.

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The company as a whole is still performing in a stellar manner and no major shakeups of its memory and other divisions are expected or warranted. Samsung is hence likely to continue leading global smartphone innovation efforts and be among the first manufacturers to embrace new technologies such as 5G, UFS 3.0 storage, and LPDDR5X memory. Whether that ends up being enough to strengthen its industry-leading position in 2019 remains to be seen but the fact that it's now facing historically high competition can only spell good news for consumers in the long run.