Samsung is expanding its product strategy in many directions as it faces its worst quarter since at least 2009. Despite preliminary results showing a 60% year-on-year collapse in operating profits, however, the Korean giant’s share price rallied on confident statements about new product directions.
The company is expanding in many areas in which it hopes for better growth, and less cut-throat competition, than in the smartphone space which has driven its fortunes since it launched the Galaxy S in 2010 and the Galaxy Note the following year. Now, squeezed between a rejuvenated iPhone range and the rising success of low cost Chinese manufacturers, Samsung will continue to hit back in handsets, notably with new models for the important mid-market.
But it will also look for growth in less crowded territory. The day before its preliminary results announcement, it outlined plans to invest $16bn in a new chip manufacturing plant near Seoul, to boost its foundry services and its own processor technologies. Following the profits warning, it was talking about other areas, from wearables to the enterprise.
In the latter market, Samsung is responding to the recent alliance between IBM and Apple to deliver mobile enterprise applications and devices. It has unveiled Samsung 360 Services for corporate clients, which will provide a single point to manage, support and connect all kinds of devices from smartphones (Samsung or not) to PCs to printers and tablets. Initially the one-stop support service will focus only on mobile products, but then it will expand to just about any enterprise gadget.
The main services will be technical support; enterprise mobility management (EMM); applications deployment and training; security and policy assessments and management; and the MobileCare inhouse support and repair offering. Samsung’s flagship enterprise security suite for Galaxy, Knox, is included – the main differentiator for the Korean firm’s own devices. The firm promises to price on a per-user, not per-device basis, given the rise of employees with more than one mobile product, but it has not detailed the pricing scheme.
The range of offerings almost mirrors that of Apple and IBM, though they divide the responsibilities – Apple taking on the device aspect while IBM handles business and enterprise app support. They also have a stronger focus on developing custom apps, particularly for vertical markets, and of course, they are iOS-specific.
Back in its comfort zone, Samsung promised new smartphones for the vital fourth quarter, in particular the mid-market Galaxy Alpha with its metal frame. The company said its future performance would be enhanced by “new smartphone line-ups featuring new materials and innovative designs, as well as a series of new mid- to low-end smartphones with strong competitive positioning on both hardware specifications and price.”
However, although the shares recovered somewhat – up 1.6% by the end of the day of the announcement, though they have lost 15% this year – many analysts believe things will get worse before they get better. “There’s nothing they can quickly do to get out of this,” Jackdaw Research analyst Jan Dawson told CNET. Others were more sanguine. “The market thinks this is the worst profit they can expect from its mobile business. It won’t go any lower from here as more product line-ups are expected throughout this year into next year,” Claire Kim of Daishin Securities wrote in a client note. “Samsung is better positioned than any other players out there to bring out new phones with upgraded hardware features.”
The Galaxy Note 4 will make its US debut on October 17, followed by the Note Edge phablet, with its screen which curves at the side. And in even newer form factors, it will continue to expand its Galaxy Gear smartwatch range – now featuring its own Opera browser – and other wearables.
On Tuesday, the company posted its biggest drop in quarterly profits since at least 2009 (when it adopted international reporting methods), and its fourth consecutive decline. Operating profit fell 60% year-on-year to KRW4.1 trillion won ($3.8bn) in the three months to September. Sales were about KRW47 trillion in the quarter, below analyst expectations. Samsung will announce net income and divisional results later in the month with its audited figures.
Analysts estimated that the mobile unit will have seen operating profit of KRW2.5 trillion on sales of KRW26 trillion, based on an increase in unit sales, but lower profit margins. A year ago, the division’s operating profit hit a record KRW6.7 trillion. It is thought to have shipped 12m Galaxy S5 smartphones in Q3, down from 18m in the second quarter. Market watchers believe the display unit will have reversed last year’s profit of KRW980bn to suffer an operating loss of KRW120bn amid slowing sales of high end screens to Samsung’s own handset division. Meanwhile, the chip organization is likely to report profit of KRW2.1 trillion on sales of KRW10.4 trillion, and is expected to be the strongest performer in Q414 too. Meanwhile, the consumer electronics activity continues to see falling profits amid price drops for TVs.