Home > Samsung Electronics struggles to find fix for smartphone woes

Samsung Electronics struggles to find fix for smartphone woes

Compan­y pinnin­g hopes on Samsun­g Pay; mobile market share, margin­s contin­ue to slide

Company pinning hopes on Samsung Pay; mobile market share, margins continue to slide. PHOTO: AFP

Company pinning hopes on Samsung Pay; mobile market share, margins continue to slide. PHOTO: AFP

SEOUL: More than a year into the overhaul of its smartphone lineup, Samsung Electronics Co Ltd has yet to find a way to reverse a slide in market share or margins, clouding its growth outlook and fuelling investor impatience.

The world’s largest handset maker is forecast on Wednesday to guide for its first annual increase in quarterly profit in two years following a dismal third quarter in 2014, but profits and mobile margins are expected to contract on a sequential basis.

Samsung has tried various fixes for its phone business. At the lower end it launched new products targeting markets such as India, while at the high end it switched from plastic to metal, introduced curved screens and cut the price for its flagship Galaxy S6 devices after sales fell short of high expectations in the second quarter.

Read: A house that runs itself? Samsung believes it’s about time

While those measures have lifted Samsung from its earnings trough, they have not been enough to regain market share from Apple Inc at the high end and Chinese markers at the lower end, or convince investors that the company is back on track for sustained growth.

“Samsung is at a standstill,” said Kim Hyun-su, fund manager for IBK Asset Management. “It’s having trouble finding a way to create new demand for its smartphones.”

The South Korean electronics giant’s stock trades at a forward price-to-book ratio of 0.9 – the lowest since 2002, according to Thomson Reuters data. It is under pressure again to return some of a cash pile of $53 billion as of end-June through dividends or share buybacks.

Mobile woes

A Thomson Reuters SmartEstimate poll of 30 analysts tips Samsung’s July-September operating profit to have risen 64 per cent to 6.7 trillion won, marking the first pickup since a record profit in the third quarter of 2013.

Smartphone makers other than Apple are finding it tough to compete on any basis besides price, as new hardware features can be quickly matched by rivals. Samsung lacks service or software offerings that can pique consumer interest and not easily be replicated, a problem it hopes its recently launched Samsung Pay service can help address.

Brokerage HMC Investment expects Samsung’s mobile division’s operating margin fell to 7.7 per cent in the third quarter from 10.6 per cent in April-June. Though overall phone shipments likely rose, the brokerage says the greater share of lower-end products and price cuts for the Galaxy S6 models weighed.

Read: Samsung eyes first entry into US stock markets

Samsung’s semiconductor business probably remained its top earner for the fifth straight quarter as new premium phones came to market. In addition to its own devices, Samsung supplies chips to new Apple iPhones.

Lacking significant growth drivers, Samsung faces pressure to boost capital returns to placate frustrated shareholders.

“A share buyback would at least send a message that the company has investor interests in mind,” IBK’s Kim said.

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Amin Khan is a web developer, SEO expert, Online Mentor & marketer working from last 4 years on the internet and managing several successful websites.

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