Samsung profit margins said to have been highest around Galaxy Note II launch, slipping since then

Samsung profit margins said to have been highest around Galaxy Note II launch, slipping since then
Samsung, the world’s biggest smartphone maker, dethroned Nokia from the number one spot a couple of years ago with an aggressive strategy and full-on engagement with Android, but now, emerging rival companies from China have taken the same stones to try and beat the market leader.

With a huge pile of unsold Samsung smartphones on store shelves, the company has been forced to admit to a sobering 20% decline in net profits in the last quarter as earning shrank.

Now, as analysts are warning about the possible further deterioration in Samsung fortunes, we are seeing more details about the profitability of the phone business at the largest smartphone maker.

Turns out, smartphone margins over at Samsung peaked with the Galaxy Note II, a phablet released in late 2012. The peak occurred in the first quarter of 2013 when the smartphone division of the company operated at a 25% margin, according to analyst Mark Newman of Bernstein Research.

In the year and a half that followed, margins have dropped to 19% currently, and are expected to further slump to 15% next year.

Even worse, hopes to see flexible display technologies revitalize Samsung’s margins are dimmer now, according to analysts. However, with a gigantic sales network, Samsung has one obvious weapon - lower prices down further, a move that is very likely to shut the doors for the emerging waves of affordable smartphone from Chinese companies. The company is obviously in a need for some restructuring, but wouldn’t margins suffer from that, and is it really something that the company should do? We’re looking forward for your thoughts below.

source: WSJ

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41 Comments

41. gigaraga

Posts: 1454; Member since: Mar 29, 2013

Wow. Just realised how much hate and haters are on this article...wow

38. Shino

Posts: 196; Member since: Jul 23, 2012

No surprise here. With SGS2 and SGN2 they directly copied iPhone and it worked as a cheaper plastic alternative. Now, it doesn't. And the next Asian copycat is about to come.

30. wax33

Posts: 45; Member since: Apr 06, 2014

In related news, Victor H said to be a troll.

25. toyboyz

Posts: 235; Member since: Jan 22, 2010

Because the phone's like mine has the perfect size screen 5.5inch. It's the perfect selling point not too big not to small:) Thats why i'm waiting on the new htc 5.5inch to come out! Plus I really miss HTC's overlay os. Miss it so much!

24. naittosan

Posts: 243; Member since: Jun 28, 2014

But wait the next big flop is coming out, Samsung Alpha.

16. cncrim

Posts: 1591; Member since: Aug 15, 2011

I'm not surprise at all, all dog have it day. Even Apple will have that day too. But LG will gain from this.

12. NokiaFTW

Posts: 2072; Member since: Oct 24, 2012

Its funny how some fandroids will bash Samsung for their poor design and TouchWiz and want them to fail and blah blah, but don't realize that if Samsung go down, a HUGE chunk of the Android market share will also go down. No real fandroid wants that. So stop bashing Samsung you Android fans. Remember, they're still the only OEM making money off of Android. Let us WP & iOS fans do the bashing.

14. CyberFalcon

Posts: 223; Member since: Apr 17, 2014

So now you are calling ifans for ur support??? Dude understand one thing before making a statement... Samsung is going down bcoz of Chinese Manufacturers who uses AOSP... Not bcoz ur precious Micro$hafts...

17. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

He never said anything about MS in his comment, re-read. Basically he is stating that people who love android shouldnt bash samsung as they literally define the android market with something of 80% share etc.

22. tedkord

Posts: 17544; Member since: Jun 17, 2009

No, as Samsung's market share drops, other Android OEMs will rise. Even as Samsung has faltered, Android market share hasn't. Samsung's problem is that they're not the only one making great Android phones anymore. Others are making better phones , and in some cases like the Moto X, at much better prices. My wife is using the X, and I have to say that other than the screen size, I'd take the X over the GS5 any day. Even the resolution difference wouldn't say me.

31. NokiaFTW

Posts: 2072; Member since: Oct 24, 2012

It's not necessary that Samsung's demise would cause other OEMs to rise. As I stated earlier, Samsung are the only ones making money off of producing Android phones. Heck, so many people who own a Samsung Galaxy that I know of don't even know which OS they're running and while some do know its Android, they don't know which version of it. You fandroids should stop living denial. While Android would still survive with LG and low cost Chinese and Indian manufacturers, they wouldn't be able to compete at the high segment, especially with the iPhone. Android is still reliant on Samsung to do the bulk of the sales. Android = Samsung for now. Maybe LG can rise up should Samsung fall, but that isn't a given.

32. tedkord

Posts: 17544; Member since: Jun 17, 2009

As I stated, the evidence says otherwise. While Samsung has seen is sales drop, Android market share has not dropped.

37. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

And that is not due to high end, like he is stating. That is due to all android devices. Including stuff like the kindle, tablets, fire phone, nokia x2 and things people dont even associate with 'android'. Again you are missing the point. Which is ok, just off topic is all. Android holds 80% of sales worldwide, yet samsung only accounts for 30%, and the next is Lenovo at 5% and LG and Huawi for 4%. So despite this, the weight of android is not in highends for that 80% mark.

26. Armchair_Commentator

Posts: 222; Member since: May 08, 2014

Personally I bash Touchwiz but I hardly want them to fail, I want them to improve. people need to stop being hardcore fans and buy things for the sake of sticking with their platforms regardless of what they spit out as consumers we vote and give feedback with our wallets.

9. JakeLee

Posts: 1021; Member since: Nov 02, 2013

First, Sammy should launch separate value brands and limit the Galaxy naming to the flagships, S, Note, and maybe Alpha. Second, they should optimize their softwares instead of extending them with gimmicky features that hardly anyone needs. Third, they should get rid of TW. That thing simply sucks.

13. CyberFalcon

Posts: 223; Member since: Apr 17, 2014

For the first time... I agree to ur statement...

18. Arte-8800

Posts: 4562; Member since: Mar 13, 2014

Same to here, agree to him aswell. Non biased post, accept the Touchwiz, which requires and takes up 1gb of Ram when all features are activated. Surely Samsung should start using 3gb Ram as standard.

23. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Agree, the Galaxy is not longer a phone distinguished by premium/flagship. It is now a name they slap on their phones. They need to change that. As stated they need a value name, perhaps Solar or Lunar, and their high end Galaxy line. For me Alpha would be one off phones like their K brand or their unique awkward phones.

28. michaelmicro unregistered

Samsung had a great brand name in Galaxy when they first launched, but they've since completely mismanaged this and dilluted the brand down to essentially meaningless.

40. ojdidit84

Posts: 462; Member since: Jul 16, 2011

I... I can't believe that I'm in complete agreement with JakeLee. Definitely hit the nail on the head. They're taking an HTC-ish route, although in a different way an not nearly to the extent of trouble they're in and also somewhat of an Apple-ish route to where they're not seeing the Chinese OEM's as a threat and in reality, they're a HUGE threat to all of the major Android OEM's. Not for a while anyway.

6. mayur007

Posts: 593; Member since: Apr 10, 2012

Samsung should not try to copy iphone in margin, I know its a business but asking 100 marks for 80 marks writing thats too much. They dont have the charm like apple. Apple its self have different identify in mobile world, they are less smartphones n more prestigious phone. They should rather compete with chinese phones bcoz chinese phones are giving charming looks and giving more value than samsung phones. When you compare a samsung phone with gionee or xiaomi, oppo etc. you find Chinese more premium.

4. wilsong17 unregistered

I'm guessing LG is going the same way Samsung maint point was bigger screen but know everyone have big screen and cheap company are making the same Sammy has to look for another game change hopefully the new bendable scree flex

3. exxperian

Posts: 25; Member since: Dec 07, 2013

Why Americans hate Samsung I know it is not their home band

2. GreekGeek

Posts: 1276; Member since: Mar 22, 2014

Because the Note II was one of its kind! Since then they haven't produced anything remarkable. It was just incremental spec bumps after spec bumps with NO added software features that are actually useful and non-gimmicky.

8. The-Sailor-Man

Posts: 1095; Member since: Mar 25, 2014

Opposite . Ignorant. LOL The profit margin go down , because Samsung is using more and more high end components and tech making the BOM higher, while not increasing the end price. I don't understand , how , less profit margin of the seller is bad for the consumer?? Oooh , yes....you are reading PA.

11. SuperAndroidEvo

Posts: 4888; Member since: Apr 15, 2011

Yes, people just will never get it. +1 for the smart comment

15. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Because as each year comes and goes, last years tech is cheaper. The price of the Note 2 vs the Note 3 didnt increase because the tech was the same price, even though it got bumped up in specs. It is not like they are using some ground breaking technology here. Maybe with the note 4 but since the note 2 it has been a specs race nothing more. All in all it is not just the note line, it is the whole division. The reason why it peaked at that point is because Galaxy meant something. Now Galaxy just means a phone, not much more, because they have saturated the market. I know plenty of people on the s3 becuase the s5 is to big of phone and the replacement is not worth it to them, like a galaxy Light.

20. tedkord

Posts: 17544; Member since: Jun 17, 2009

The whole industry, including Apple, has seen their margins compress. That's what happens in tech. Computers, TVs, stereo equipment - all of it. Margins drop over time. People buy a smartphone for $200, they expect to never pay more from then on, even if the cost of materials rises (along with labor costs, etc...).

27. michaelmicro unregistered

The only company likely to weather the margins storm is Apple, simply because they stubbornly cling on to their margins.

34. Cicero

Posts: 1167; Member since: Jan 22, 2014

Alpha is coming for them.

* Some comments have been hidden, because they don't meet the discussions rules.

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