Samsung forecasts huge profit drop on slower smartphone and chip sales

Samsung forecasts huge profit drop on slower smartphone and chip sales
The Samsung Galaxy S9

With smartphone sales slowing and memory chip demand on the decline, industry analysts already expected a drop in profit for Samsung. But today the South Korean giant announced its own estimates and it appears the results are significantly worse.

After reporting a $13.27 billion profit just one year ago, Samsung has today revealed that its profits for the fourth quarter of 2018 are set to decline a whopping 29% year-on-year to just $9.67 billion. To make matters worse, this figure also represents a drop of 38.5% from the record high of $15.6 billion in profit registered in the previous quarter. Total sales are also down 10.6% from the year prior to $52.7 billion.

Moving on to the reasons why, it seems the intensifying competition from Chinese rivals have affected the brand more than initially expected in the smartphone market. Alongside this, Samsung’s profit margins also took a hit by higher marketing spending throughout the holiday season. Nevertheless, the South Korean giant remains optimistic about its future and hopes to solidify its market leadership with 5G and its upcoming foldable smartphone.

Elsewhere, demand for the company’s memory chips fell drastically too as companies reined in spending. This subsequently caused a larger-than-expected dip in prices.

Moving forward, Samsung expects its weak performance to continue throughout the first quarter of 2019. However, it does anticipate a slight rebound in the second half of the year as memory chip demand rises. The South Korean giant will announce more details later on this month alongside its full Q4 2018 report.

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39 Comments

1. kevin97

Posts: 90; Member since: Mar 01, 2016

Excellent news. Copying Apple even on prices made them lose sales, just like Apple lost. The news is good because (hopefully) Samsung will understand that the S10 will have to be priced reasonably.

9. maherk

Posts: 6522; Member since: Feb 10, 2012

I hope they lose big. Apple are arrogant with their approach, so I don't see them lowering their prices anytime soon, but hopefully Samsung suffers a huge loss that force them to go back to their old pricing. Even Huawei are asking too much for their flagships these days, and we can only hope that with the rise of OP and Xiaomi in the western market, the big 3 will be forced to lower their prices.

13. midan

Posts: 2407; Member since: Oct 09, 2017

it looks like you just doesn't understand anything about how business works. Huawei is asking more for their phones because they know you can't run a business like they used to do. Their strategy was to sell phones without profits and eventually when they get name they will ask more because companies actually have to make profits to get bigger. No-one will lower their prices and it's not arrogant it's just business

15. almostdone

Posts: 407; Member since: Sep 25, 2012

Yes business will also have to reflect consumer demand without it they will go bust. If people are unwilling to pay $1000+ or soon $1500+ they will have no choice except to change their strategies. Remember it's only in the last couple of years prices started to rocket and that does not come down to inflation.

16. maherk

Posts: 6522; Member since: Feb 10, 2012

The butthurt fanboy is back at it again. Are you this brainwashed that you truly believe that if these companies don't put a 1000 dollars pricetag on their phones, they wouldn't be making any profit off of it? Lol You do realize that the total cost of these phones is 1/3 what you get charged for it? And again, I mentioned two OEMs that seems to have found a way to offer flagship phones that are 400+ dollars cheaper than what the big 3 are asking for.

17. midan

Posts: 2407; Member since: Oct 09, 2017

"you do realize that the total cost of these phones is 1/3 " You mean price of the parts? Why you think Samsung and Apple can have global huge worlwide launches unlike anyone else? They have to build lot more units lot faster than anyone else. Everything cost money, talking about part prices is just again example that you don't understand how the business works. Watch few episodes shark tank and you might notice the pattern, selling price has to be atleast 3-4 times higher than manufacture cost to make a great business. Those chinese companies can sell they products cheaper because they have different strategy to compete. They hope to get the money later, also they can't have worlwide launches like the big ones because they don't have money to do that and also they would have to pay for used patents. So no it's stupid to talk about how much phones cost to make.

18. mootu

Posts: 1253; Member since: Mar 16, 2017

Samsung, Apple and Huawei all operate with a goal of roughly 40% total profit from the sale of a phone, it's been this way for years. They could reduce price if they chose to and sell more devices to offset the price cut. Xiaomi is the opposite, they have said they will never make more than 5% profit on the sale of a device and rely on large numbers of mainly mid range devices, also in China Xiaomi make a lot of from services. OnePlus is different again, they take a small profit from the phone but make a lot of their profit from the sale of acessories. They all have different business practices but it's the OEM's with the highest priced phones who are being hit hardest.

22. Agniputra

Posts: 29; Member since: Dec 06, 2018

First time seeing very sensible comment from midan.

26. midan

Posts: 2407; Member since: Oct 09, 2017

I write lot of good stuff, too bad these sites are ruined with few childs commenting. I wrote completely reasonable comment where i defended both Apple and Samsung and how business works and yet i got called butthurt fanboy, seriously?

37. Atechguy0

Posts: 918; Member since: Aug 03, 2018

Don't you wish you could take back what you said midan? Especially that part about no one will lower their prices and it's not arrogant it's just business. Now Apple has slashed their prices in China. Not to mention the deep discounts from carriers all over. Please explain that one to all of us.

19. mayur007

Posts: 592; Member since: Apr 10, 2012

Right

2. TrumpsRuinedAmerica

Posts: 114; Member since: Dec 31, 2017

Apple is doomed! Oh wait....

10. maherk

Posts: 6522; Member since: Feb 10, 2012

You have spoken too early, go check the article about Apple's sales that was posted shortly after this article

3. L0n3n1nja

Posts: 1499; Member since: Jul 12, 2016

It's looking more and more believable that Huawei will be number one in 2020.

6. toukale

Posts: 588; Member since: Jun 10, 2015

What exactly is number one going the get Huawei that Samsung and Apple won't have? I see this comment all the time and I always wonder what exactly it gets the number vendor that the rest don't get. It seems, this is all about bragging rights for the fanatics and nothing more. For profits companies are all about making money and on that point no one is touching Apple. Expanding your market is easy to do if you are willing to sell your product at a lesser cost than the next guy. Right now the only market that is growing is 3rd world countries where most folks barely earn enough money to put food on the table, never mind buying $1000 devices.

8. meanestgenius

Posts: 20999; Member since: May 28, 2014

By your logic, no one being able to touch Apple when it comes to profits is just bragging rights for Apple fanatics, seeing as how none of you get even the smallest cut of said profits. Huawei becoming number one in terms of market share means that consumers are speaking with their wallets, as Huawei puts out a competitive product at a competitive price.

11. toukale

Posts: 588; Member since: Jun 10, 2015

Same is the case with Apple and their high profit margins. Point being does not matter to anyone which company makes the most profits or has the most market shares. Buy what you want or happy with. Huawai having a bigger market shares does nothing for us, same with Apple making the most profits except if you are a shareholders.

12. meanestgenius

Posts: 20999; Member since: May 28, 2014

At least we can agree on this.

21. L0n3n1nja

Posts: 1499; Member since: Jul 12, 2016

Market share is a huge deal, especially when you are number one or reverse and near the bottom. When you have good market share brand recognition comes with it, which is the equivalent of free marketing. In America almost everyone buys Samsung or Apple because they dominate the market and everyone sees them. When you have poor market share no one sees your products and tend to forget about you. Also with good market share you have more pull and influence on supply lines and can negotiate better pricing leading to higher profit margins. Apple started out an AT&T exclusive, if they wouldn't of been popular enough to gain market share other carriers wouldn't of had to adopt their phone to prevent the loss of customers. The continued rise in market share lead Apple to having the most popular smart phone in the world, which lead to them being able to negotiate and lower component and manufacturing costs. This also lead to a booming accessories market and huge app store profits. If Huawei becomes number one their profits will climb. If Apple and Samsung fall far enough, even if Huawei sells their phones for less, bulk sales will eventually make up the difference. Personally I wasn't bragging about them, I made the comment because that is their goal.

23. toukale

Posts: 588; Member since: Jun 10, 2015

OH look, the default definition of market shares, which in this case means jack. Android has about 85% of the market, meaning, outside of Apple everyone runs the same software, same apps everything the same. Second, this is a mature and saturated market. Meaning everyone will have access to the same tech. Samsung and Apple will not get locked out of some tech because Huawei has more market shares than them. In short market shares in this case do not really bring the pull to Huawei that it normally do. The only company that needed to worry about market shares was Apple, because of them using a different OS, and developer support are needed for their platform. They passed that threshold years ago. It is no long a concern now and won't be for some time. Everyone else are pretty much in the same boat. In a saturated, mature market where everyone used the same OS and apps and access to the same tech it means jack. That has been the case in the pc world for years and that is not going to change in mobile anytime soon.

25. meanestgenius

Posts: 20999; Member since: May 28, 2014

Apple is in the same saturated, mature market, which is why their market barely grows, if at all. Apples profits keep growing because they keep raising prices, but that won't help them in the long run, as less people have been upgrading to new iPhones. Huawei gaining market share does indeed mean more brand recognition, more developers wanting to develop for them, (which can also work in Android's favor on a whole), and it can even mean more developers making apps that are specific to Huawei's smartphones. It will also mean more exposure. Stop acting like more market share doesn't have benefits.

27. toukale

Posts: 588; Member since: Jun 10, 2015

You obviously can't get pass this market shares thing. Huawei is using Android, Google got that covered. No developers are going to write Huawei specific stuff, why would they? Samsung have been trying that for years with no success. You keep bringing up market shares and can't provide any specific reasons why beyond the usual that is not valid in this case. In regards to Apple, unlike Samsung and Huawei, they have their own platform, they also have a service market which made $40 billions last year. Samsung and Huawei do not have a service story, Google is the one ripping that benefit. Samsung have tried for years and that have not worked. There is a reason why iPhones are supported for at least 5 years. It has to do with services, Apple have about 1.3 billion iPhones to make money from and once you add in iPads its 1.5 billion ios devices they will make money from in services. No other oem's have that going, so I would not worry about Apple anytime soon. Their stocks will get a hit because of the slowdown of $1k plus devices, but they will make a lot of it back in services.

29. meanestgenius

Posts: 20999; Member since: May 28, 2014

No, it's YOU that can't get past the market share thing. Everytime someone mentions market share, you Apple zealots get triggered. More market share means more developers, and if you have the mist market share and the most visibility, it's easier to persuade developers to build apps specific to your smartphone. Developers will also be more willing to due to the fact that their are more consumers using your product. Android has the amount of developers it does due to market share. So does Apple. What, you think that if iOS only had one million users that it would have the amount of apps that it does? You keep on saying market share isn't valid, and yet, it is. You just don't seem to understand why. Both Samsung and Huawei offer their own apps and services, which I'm certain brings them at least a modicum of revenue. It may not be to the degree of Apple, but they have it. They also have their hands in much more than Apple does that brings them income. They also have many more things in-house, just like Apple, like SoC's. But you Apple Zealots only see what Apple has. iPhones being supported for five years don't mean much when older hardware gets crippled by the latest updates. Since that's the case, I wouldn't brag about that. Don't get me wrong, it's great that they support their devices for so long, but it sucks that they cripple them, forcing the consumer to upgrade.

32. toukale

Posts: 588; Member since: Jun 10, 2015

Again with the market share thing. What OS is Huawei using? Last I check it was Android, meaning developers are not going to write Huawei only apps. They will write an android app. This is what I mean by Huawei market share mean squat because they are using android, as with everyone else not name Apple. It would actually mean something if Huawei was using their own OS like the side project Samsung have (Tizen). Then attracting developers would mean something. In their case they are not using something different, which negate the market share argument. The market share argument comes into play for 2-3 main reasons. 1st, developers, since they are using android that's not a reason, Google got that covered. 2nd- Scale, since the market is mature and saturated and a commodity at this point, the bigger market share do not provide them with an advantage over an Apple or a Samsung (which is where my argument all started). 3rd, Accessories, since Huawei is using similar parts as everyone else (standards usb-c etc...) market shares again do not come into play. Those are the things market shares are good for and since they are using Android as everyone else my point is it's not an advantage over those other two. Now if you take Apple and Samsung out of the equation and replace them with HTC and Sony then you can make an argument for my second reason, not the 1st or 3rd. To your last point, iOS 12 took care of that argument, Next. Finally, when you can't make a good argument, let's resort to name calling.

33. meanestgenius

Posts: 20999; Member since: May 28, 2014

Yes, the market share thing.I fail to see why you can't comprehend the importance of it. If you have enough market share, and developers are able to make money off it, they will develop for them for you, whether you're using Android or not. For example: there are developers out of China that develop for Huawei's AppGallary, which is independent from the Google Playstore. However, I do recall also mentioning that it's good for Android on a whole. How convenient of you to skip over that part. The more market share Android vendors like Huawei have, the more developers get attracted to building for the platform. Huawei's own AppGallary that developers out of China develop for throw a money wrench into your point here. Market share does come into play with accessories like cases for Huawei smartphones with three camera's, like the P20 Pro. If this smartphone wasn't selling in meaningful numbers, developers wouldn't bother to make cases specific for it. So you see, market share absolutely has its advantages if a company has a larger share of the market than others. So my arguments are valid ones, without removing any other OEM. iOS 12 broke more functionality in iPhones, so no, it didn't take care of my argument. Next. Finally, I merely called you what you are, and made good arguments at the same time.

4. toukale

Posts: 588; Member since: Jun 10, 2015

The reality is smartphone have reached saturation level. The only of the market that still have growth left is the low end, the part that Apple don't care to compete in (because really there is no money/profit to be made there). Samsung do play in that market, but the Chinese vendors are running circles around it with better offering at a more competitive price. This is what happened in the pc market. Anyone who paid attention to this knew it was coming.

20. L0n3n1nja

Posts: 1499; Member since: Jul 12, 2016

Apple is actually in a better spot to dominate the low end market while remaining profitable than any Android OEM right now. They have a solid revenue stream from apps and services. Plenty of profit there, just not as much as selling high end phones.

24. toukale

Posts: 588; Member since: Jun 10, 2015

Exactly, they have a service revenue and the platform owner, which none of the android oem's do, Google is the platform owner and rips all those benefits.

5. Tipus

Posts: 750; Member since: Sep 30, 2016

Price increase backfired to Samsung as well as to Apple. I hope they'll learn from it

7. CreeDiddy

Posts: 2019; Member since: Nov 04, 2011

Apple and Samsung are bound to take hits.

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