Lesson1_Samsung Profit Decrease

8/13/2019 Lesson1_Samsung Profit Decrease

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Article 1: Samsung needs 'next big thing'

By Kim Tae-jong (Korea Times; January 24, 2014)

Samsung Electronics must find the next big thing beyond smartphones, market analystssaid, Friday.

Calls for a portfolio change to cut the firms reliance on these came after the electronicsgiants earnings declined in the fourth quarter.

The company said Friday that it posted an operating profit of 8.3 trillion won from October toDecember last year, the lowest since the third quarter in 2012.

This is down 18.23% from the previous quarter and 5.95% from a year earlier. During the

same period, its sales grew by 5.74% year-on-year to 59.28 trillion won.

Samsung relies too heavily on the sales of smartphones, Choi In-hyuk, a partner at BostonConsulting Group, told The Korea Times. Now, it needs to diversify its business portfolio. Italso needs to come up with what could be the next big thing for the firm after smartphones. Itis critical to seek out a new growth engine.

Daishin Securities analyst Park Kang-ho echoed this view , saying, Unless the firm finds anew engine to support growth along with smartphones, its growth momentum will continue toweaken. It needs a new strategy such as the diversification of its business portfolio

Operating profits in the IT and mobile division in charge of smartphones and tablets reached5.47 trillion won in the fourth quarter, accounting for 65 percent of the total.The display division posted the second-highest operating profit of 2.14 trillion won, followedby semiconductors (1.99 trillion won) and consumer electronics (660 billion won).Its memory chip business enjoyed a 40.1% increase in operating profit from a year ago, whilethe display business saw its profits fall by 90.1% due to sluggish sales of panels.

Peter Lee, an analyst at Woori Investment & Securities, suggested that Samsung shouldstrengthen its component business.


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It is time for Samsung to sharpen its competitive edge in the semiconductor and displaysectors through innovations to ensure sustainable growth, given that the smart devicemarkets have become saturated , he said.

The firm said that the poor performance in Q4 2013 could be attributed to three key factors!

the rising Korean won against other currencies, concerns over the quantitative easingtapering in the U.S. and massive bonuses paid out to its employees.It paid out 700 billion won to its employees last year to commemorate the 20th anniversary ofits so-called New Management Initiative, Samsungs key business strategy.We dont expect earnings to improve significantly in the first quarter due to sluggish demandin the TV and component business, said Samsung Electronics in a statement.Although the global economy will get back on a recovery track , risks associated withvolatile foreign exchange rates are also expected to continue to linger, it added.For all of 2013, Samsung posted record operating profits of 36.79 trillion won, up 26.63% froma year before. Its net profits also jumped by 27.7% to 30.47 trillion won. Sales also rose by13.72% to 228.6 trillion won.

Shares in Samsung Electronics jumped by 0.62% to close at 1,307,000 won on the Seoulbourse, Friday.

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"This year, looking at the industry environment, we do expect that the industry will become abit more difficult with growth slowing down and competition becoming more fierce," HyunjoonKim, an executive in Samsung's mobile business, said in a transcript of an earningsconference call with analysts.

The conglomerate, meanwhile, said it would ease off its aggressive spending on marketing,pulling back at a time when competition is just getting fiercer.Samsung, however, has big hopes that a strong second half of the year will help smartphonesand tablets post "solid growth" overall for 2014. Still, much of that success could depend onwhat its rivals do.

First up is Apple. The Cupertino, Calif., company is expected to launch two new iPhones withbigger screens as soon as this summer. While Samsung and Apple have long competed inthe high end, Apple hasn't ever sold phablets , those hybrids between smartphones andtablets that Samsung popularized.

Samsung's Note line of phablets has become a promising area for the company. Each newNote smartphone has sold much better than the previous generation, and Samsung has saidtime and again that its bigger screens are one of the main reasons customers choose it over

Apple. It even made that a key argument during its recent patent infringement trial versus Apple. And it said during its fourth-quarter earnings call early Friday that consumers believe a"large smartphone equals Samsung.""We have created this segment, and we are the leaders of this large smartphone segment,"Kim said. He vowed that Samsung would offer "more differentiating" large displays and focuson features such as S Pen and multitasking to strengthen its lead.

If Samsung is right and consumers are choosing it for a bigger screen, there's the risk thatcustomers may take a second look at Apple if it launches an iPhone that goes beyond itscurrent 4-inch display. And no, a smart stylus isn't going to keep Samsung customers loyal.

Samsung also has to worry about China. Most people in mature markets like the US havesmartphones, so emerging regions are becoming a key battleground. Samsung is China'sbiggest smartphone vendor , but rivals such as Lenovo and Huawei are gaining quickly. Thelatest threat: the iPhone becoming available on China Mobile, the world's largest wirelesscarrier.

Samsung will have to fight even harder to gain customers in China, and there's always a riskit could end up competing more on price than anything. That could hurt profitability evenmore.Of course, Samsung isn't standing still . The company will launch its new Galaxy S5 in Marchor April, and the device is expected to be a big leap forward from the Galaxy S4. It's alsoworking on other wearable devices and pushing its tablets. Samsung executives said earlyFriday that they plan to expand their flagship phone line and increase the number of phonesthat work with Galaxy Gear and other wearables .

Samsung also has a big opportunity to offset some of the weakness in consumer demand bymaking a bigger push with business users. Android has long been viewed as less secure thanBlackBerry and other operating systems, but Samsung's Knox security software has received


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Department of Defense approval for government use.In addition, Samsung believes the rise of LTE in China will help its position and boost demandfor high-end smartphones. And the company expects the LTE market in the country to growfaster than current estimates.

"Based on our LTE technology competitiveness as well as experience in other LTE marketsaround the world, also based on our premium brand image that we command in China,Samsung will try to be the leader in the Chinese LTE space as well," Kim said during thecompany's earnings call.

While Samsung has plenty of opportunities to strengthen its position in mobile, it's also goingto face a lot of concerns about maintaining its momentum. After all, there are plenty ofexamples, such as Nokia and BlackBerry, that show one misstep can be fatal.Samsung is by no means in the same kind of situation. But that doesn't mean the boom dayscan't end as quickly as it did for those former mobile giants.

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Lesson1_Samsung Profit Decrease

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